Most people in America have a 401K savings plan because pensions are pretty much a thing of the past.

A 401(k) is the main way you can save for retirement in America because most employers will match a portion of your savings.  Your employer works with retirement companies to set up their 401k plan. The earlier you start contributing to your 401(k) the better your retirement should be.  If you start more than a good 10 years away from retirement you get much better chance to really work your 401(k) online retirement account. Also, when you defer a portion of your wages to an employer’s sponsored 401(k), don’t just accept the default savings rate.  You can start saving at 3% of your salary plus every year if you get a raise, you can add another point until you are saving 20%.  Theoretically this will have it growing so much faster.  However putting more than what your employer matches may not be a great idea because there may be better ways to allocate those assets.

Match Your Employer

Given the 401(k)s tax breaks, it is best to invest all you can up to the maximum matching by your company.  If you don’t know how much your employer will match contact the human resources department of your employer.   If you are 50 years or older or more, you may want to be contributing 15% or more to play catch up plus do another percentage each time you get a raise.  With a 401k you allocate your money where you want based on the 401k plan at your employer.  It is generally accepted as a rule of thumb that when you’re in your twenties to thirties you can have up to 90% of your investments in stocks because you have time, but when you get closer to retirement you may want less risk by having  50-50 stocks and bonds and when you are within ten years, you may want to be mostly conservative such as target date funds, with fewer stocks in the mix.

Roth 401k

If you still have funds to invest with after matching your employer you may want to diversify with a Roth 401k, you can save after-tax dollars and multiply faster.  You may want to set up an account with a broker that will give you an online retirement account so you can check individual stocks etc.

Changing jobs

Don’t opt to cash out when changing your job, it will be tempting to withdraw some before your age is 59 ½ but you will forfeit and incur a 10% early withdrawal penalty.  However, if you feel that your new employer’s 401k plan has more choices that you would like to take advantage of then you can move your funds for your previous employers 401k plan to your new one.

Cashing Out

A big reason you don’t want to “cash-out” is because you risk missing out on compounded interest.   Devising a long-term investment plan, also known as an asset allocation strategy to stick to, will give you a stress free way to come out ahead.

If your investment plan charges you fees, be very careful.  It is not usually worth paying 401k retirement companies a percentage of your portfolio to pay someone to guide it.  However you can contact your plan administrator for retirement planning help with no cost to you.

Finally, educate yourself, ask your employer for any information they can give you about your investments, portfolio, asset options, or the like.  Read it and if there are points you need clarified, contact the investment manager. Or visit your online retirement accounts once logged in at your employers 401k site.

To your everlasting wealth!