As the temperatures start to drop and we “fall” into October, keep in mind that open enrollment season is right around the corner. This is a time when employees get a first glance at which benefits they’ll be offered next year and may have the opportunity to make changes to their current coverage selections. While many employees tend to focus on their healthcare benefits during this period, it’s also a good time to revisit your 401(k) and get the latest information on your plan.
A recent Schwab survey* found that regardless of whether workers are actively contributing to a 401(k) or have contributed to one in the past, the majority identify it as their largest or only source of retirement savings. Since this is such a crucial savings vehicle for so many people, it is important to make sure you’re aware and availing yourself of all of its features. As we head into open enrollment season, here are my top suggestions for making the most of your workplace 401(k):
Good things come to those who wait. Many employers require workers to serve a specified amount of time at the company before they can enroll in the 401(k) plan. Depending on the company, this could be as long as a year, so new hires might find it difficult to keep track of when they’re able to sign up. I’d encourage you to take open enrollment season as an opportunity to ask about your company’s policy, and if you haven’t been automatically enrolled, sign up for the plan as soon as you’re eligible. The earlier you begin saving, the easier it can be to achieve your retirement savings goals.
Matching isn’t just for fall accessories. I always say that your number one financial priority should be saving enough in your 401(k) to take full advantage of any matching dollars offered by your employer. The match is a formula set by the employer that determines how much they’ll put into your account based on how much you contribute. For example, one common match structure is 50 cents on the dollar up to 6 percent of your salary.** If you’re fortunate enough to work for a company that offers a 401(k) match, you’d be wise to take advantage of it in full so as not to miss out on important funds for retirement.
Spice up your contributions. While contributing enough to get the full employer match is a smart place to start, it’s also a good idea to increase your contribution level at various milestones, such as during open enrollment season or when you get a raise or bonus. The fact is, the maximum percentage at which your employer will match your contributions (for example, 6 percent) may not be enough to help you achieve your retirement goals. For reference, in 2017 you can contribute up to $18,000 to a traditional 401(k) plan, and if you’re 50 or over, you can put away an additional $6,000 in catch-up contributions if your plan permits. While it may be tempting to splurge on pumpkin spice lattes all season, steering some additional dollars towards your retirement account can add up to big savings by the time you reach retirement.
Cozy up to professional advice. Many 401(k) plans come with some form of managed account services, wherein a financial professional helps guide your investment decisions and helps you make a plan to meet your individual retirement goals. If these services are available to you and you haven’t already taken advantage of them, now may be a good time to enroll. The majority of workers in that same recent survey said their investment confidence would grow dramatically with the help of a financial professional, and for good reason. With something as important to your financial future as a 401(k), it’s a good idea to seek a professional opinion to make sure you are on the right track.
Restore balance. One of the keys to 401(k) maintenance is periodic rebalancing – which means making sure you still have the right mix of assets to align with your growth goals and risk tolerance, and then adjusting your investment allocations if needed. This is one of the things that a financial professional can help you with. In many cases, you can even set up automatic rebalancing to take some of the guesswork out of the process.
With this knowledge properly squirreled away, you’re well on your way to making the most of your 401(k) plan this autumn. Happy fall and happy open enrollment season!
* 2017 401(k) Participation Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is not affiliated with Schwab Retirement Plan Services, Inc.
** Your company may have a maximum match as well as other restrictions. The employer contribution is paid on a pre-tax basis and may be taxable at withdrawal.
The information contained herein is proprietary to Schwab Retirement Plan Services, Inc. (SRPS) and is for general informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or personalized advice. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information provided herein may be subject to change.