8 Strategies To Maximize Your Job's Retirement Plan
Eric Bowie
Contracting Officer at U.S. GSA | Financial Mentor & Coach at Smart Money Bro on YouTube where I help people make, save, and invest more money
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Never forget: Your income from a job can be your greatest wealth building tool.
One of the best personal financial moves you can make this year to "LEVEL UP" your money, is to review, and take advantage of, the investment options offered by your current employer. Often times we forget that our income from a job can be our greatest wealth building tool, if we learn to get the most out of it.
Do yourself a huge favor and make a commitment to walk into your job's human resources department, or visit their site online, asap. It is critical that you study the information, learn as much as you can about what is offered and your options. Why? Because you want to make the most informed personal financial decisions. INFORMATION IS KING!
Whether it's a 401(k), 403(b), profit-sharing plan, 457 plan, or any other type of employer-sponsored plan, you need to understand fully what is being offered and exactly how take advantage of it.
8 Strategies To Get The Most Out Of Your Job's Retirement Plan
1. Understand your options.
Your job is required to provide you with the information explaining what they offer, in terms of retirement savings. Please, as boring as it may feel, read the pamphlets, visit the website, ask questions, and understand the information. If you were recently hired, there is a chance that your job has auto-enrolled you. You need to know what it is you are enrolled in, what it means, and what are your choices. There is no substitute for information in this case. Remember, your money is your first business, so get as much information you can about exactly what your options are.
2. Review the various mix of stocks and bonds.
Every job's retirement plan is invested in certain stocks, bonds, index funds, mutual funds, etc. You should know the mix of investments being offered, and understand which are best suited for you. Your job is to manage them and use strategies to make sure you get the most out of them in your retirement investments. Don't be intimidated by this learning. If you have learned enough in your lifetime to get the job, then you can learn this stuff too! It's critical that you understand what you are investing your money in when you put money towards your retirement. Don't just settle for what they say. Do your own research!
3. Get the 401(k) match up to the max.
When your job offers a match, get the match up to the maximum amount of the match. Don't leave this "free money" on the table. Again, when you contact HR and have the conversation, be sure to ask them what does the company match, and be sure you are taking full advantage of it. Employee matching is the best way for employees to maximize their retirement savings. If I gave you $100 if you invest $100, why wouldn't you take that deal? If I only gave you $50 for every $100 you invested, why wouldn't you take that deal, as well? The point is, getting the match is a critical long-term investing strategy.
4. Increase your retirement savings and investing amount.
Many people save and invest in their retirement plan, but most people aren't saving and investing enough. More than 20% of Americans have no savings at all and more than 70% don't believe they are saving enough. An they are probably right about that!
Listen to me closely on this one: Please don't settle for the 3% auto-enrollment amount. Don't settle for the 5% because it feels safe. This is your opportunity to go all out and save and invest as much as you can for your future. Try to up your contributions to 15%. Yes, I said 15%. It may sound like a stretch, but considerate it. A good strategy is to use your raise towards raising your contributions. Or perhaps you can commit to raising your contributions by 1% each quarter of the year.
5. Get the Roth option, if it is offered.
There are many employer retirement plans that give you the choice to save in a traditional 401(k) or a Roth 401(k) option. If you have the option, please consider investing in the Roth option. Why? Well, because when your retire and need the money, you can withdraw it tax free, because you paid taxes on it before investing it. If your employer doesn't offer a Roth option, consider investing up to your employers match and then do more investing by opening your own separate Roth IRA at a reputable brokerage firm.
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6. Open a brokerage account
Again, if your job doesn't have a Roth option, find a good discount brokerage firm such as Vanguard, Fidelity, TD Ameritrade, or others, and open your own Roth IRA. Typically, these companies have fantastic customer service to help you get started, great online tools, and the process is fairly easy. They also have online tutorials and valuable teaching tools to help you understand the investing process.
Your Roth IRA bucket can be invested in mutual funds, stocks, bond, index funds, ETFs, and more. A good rule of thumb is to consider total stock market ETF's and index funds that track the performance of the market. Also, keep in mind that there are Roth IRA income limitations and also limits to contribution amounts that change annually. Be sure to do some serious detailed research and go for it!
7. Be sure to "transfer" the money in your retirement plan if you change jobs.
If you leave a job, you do not want to touch this money, no matter what! You do not want to leave a job and have them mistakenly send you the money, which will trigger an IRS event and penalties will be assessed.
This is a good way to lose 40% of your retirement savings!
Transfers are when moving money from one retirement IRA to another similar retirement IRA. If you leave and get a new job, you want to have the money in your retirement account with your current employer "transferred" to your new job's employee retirement account. This way you don't see or touch the money, and you can avoid penalties. Transfers are not reported to the IRS. This is crucial because if you don't touch the money, you won't pay a penalty. Discuss this with HR so you know the rules.
8. Don't touch the money.
Right now, unemployment is at a 50 year low at 3.5%. If you listen to my YouTube channel where we discuss this, you already know that the unemployment rate can only go up from here. We don't know exactly when unemployment will go up, but we do know that you need an emergency fund. A recent report from Bankrate shows that half of all Americans have dipped into their retirement money. That is a problem.
Commit to saving for emergencies so you have money in case something goes wrong. This way you can avoid the temptation to borrow from your retirement savings.
So now you know: Know your options, understand where your money is being invested, get the full amount of the match, increase your retirement savings, do the Roth option, open an outside account if you must, know the transfer rules, and please do not touch it!
Maximizing your job's retirement plan is critical to leveling up your personal finances and if you need help, please use your job's human resources department, online tools, and get the necessary professional advice to help you make the wisest decisions with your money.
Visit us on our?YouTube channel for many more personal finance videos.?I provide information and full transparency into my own financial situation, while offering suggestions and help for others.
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Take care of yourself and take care of other people.
Sincerely,
Eric C. Bowie (Smart Money Bro)