It’s hard to believe, but 2018 is just around the corner! For me, December is always a time to reflect on the past year and to start thinking about how to be the best version of myself in the new year. Like most folks, I come up with a list of New Year’s resolutions, committing to take better care of myself and others in the months ahead.
When setting these goals, I like to focus on multiple areas of my life – from health and fitness, to charity and service, to budgeting and finances. That last bucket is especially important, because the financial decisions we make now have implications for decades to come. This is especially true when it comes to saving for retirement, which requires thoughtful planning and conscientious investing all throughout your career. Most people rely on a 401(k) as their largest or only source of retirement savings,* so it makes sense to outline goals specific to that plan. I encourage you to come up with objectives that make sense for your unique situation, but if you need help getting started, you can also borrow my top four 401(k) resolutions for the new year:
1) Resolve to save enough to take full advantage of the employer match.
Most employers will offer to match some of the money you invest in your 401(k). This match can be structured any number of ways, but one common formula is an employer putting 50 cents into your account for every dollar you contribute, often up to 6% of your salary. Other employers might match at a higher contribution percentage to encourage you to save even more.
As I always say, saving enough to take advantage of any matching dollars offered by your employer should be your number one financial priority. This is because the 401(k) employer match offers a return on investment you likely can’t get anywhere else. In 2018, commit to taking this fundamental step with your 401(k).**
2) Commit to increasing your contribution level.
While saving enough to get that full match is critical, the truth is that you’ll likely need to contribute an even higher percentage of your salary to your 401(k) to meet your long-term savings goals. The IRS has announced that the maximum yearly contribution for 401(k)s will rise to $18,500 in 2018 (up from $18,000 this year), so there’s even more opportunity to sock away funds for the future. Even if you can’t quite max out, resolve to increase your contribution level by a percentage or two. If you receive a year-end bonus, think about allocating some of it to your 401(k) account as well.
3) Make it a point to rebalance.
The markets have hit record highs in recent months, and while you may have seen a bump in your balance, these dramatic market movements could have also left your asset allocation out of whack. When certain stock sectors perform particularly well, that can leave those sectors over-weighted and others under-weighted in your 401(k). While it’s important to keep in mind that your 401(k) is a long-term investment and you shouldn’t make big changes after every period of volatility, the start of a new year can be a good time to rebalance so that your investments are in line with your risk tolerance and desired asset allocation.
4) Decide to treat 401(k) loans as a last resort.
Between travel expenses, gifts, bills and other obligations, this time of year can certainly pose a strain on your finances. While you might be tempted to dip into your 401(k) for some quick cash, a 401(k) loan can have severe consequences that can haunt you for years to come. This kind of loan must be repaid with after-tax dollars and usually comes with a hefty tax penalty if you leave your job and can’t repay the full balance. For this reason, resolve to borrow from your 401(k) only as a last result.
One of the hardest things about New Year’s resolutions is keeping up with them past January. If you need some extra support, find out if your company 401(k) plan offers professional advice or managed account services. A financial professional can help you set a retirement saving strategy and stick to it. Happy saving and Happy New Year!
*2017 401(k) Participant 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.
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