4 Ways to Make Your 401(k) Work Harder for You

Everyone needs to save for retirement, but beyond putting a percentage of your income into your 401(k), how can you make that money grow faster? If you want to retire comfortably, it's important to save and invest in a way that really gets the most from your 401(k).

While you're working hard on the job, let's look at a few ways to make that 401(k) work harder for you.

1. Get your employer 401(k) match

Your first priority for making your 401(k) work harder should be to contribute at least enough to get the full company 401(k) match from your employer. Not every company offers a match, but many do -- for example, if you put 5% of your salary into your 401(k), your company might match 50% of that amount, giving you a total of 7.5% of your salary invested in your 401(k) account.

If your company will match your 401(k) contributions, take them up on that offer. That is money that you have earned and deserve to get. Don't leave it on the table.

2. Are you age 50 and up? Use catch-up contributions

The usual 401(k) contribution limit for 2024 is $23,000 -- but if you're age 50 or over, the IRS has a special bonus for you. People aged 50 and up are allowed to make "catch-up contributions" to their 401(k)s, in the amount of $7,500. So that means for 2024, you can put up to $30,500 into your 401(k).

Many people who are 50-plus are at a point in their careers where they're earning more money than ever. Take advantage of your peak earning years and max out your 401(k). Especially if you're a high earner whose income is too big to qualify for a Roth IRA or tax deductions from a traditional IRA, maxing out your 401(k) could be your best way to boost your retirement savings.

3. Invest appropriately for long-term goals

Are you investing in stocks that will (hopefully) generate larger long-term growth, or do you have too much money tied up in fixed income assets like cash and bonds? Leaving your long-term money invested in low-yield assets like cash or bonds can cause you to miss out on massive gains. Cash and bonds might not keep up with inflation; stocks can be risky in the short run, but they will often help you build meaningful wealth for the future.

As a general rule, if you have many decades left until retirement age, your 401(k) money should mostly be invested in stocks -- because you need maximum long-term growth, and you have enough time to recover from possible downturns in the stock market along the way. Sometimes people are too worried about the risk of losing money in the stock market, thus they don't invest retirement savings that "should" be in stocks.

There's no one right answer for asset allocation. Deciding how much of your retirement savings to put into stocks, bonds, or other assets will depend on your risk tolerance, time horizon, and what helps you sleep at night. But many younger investors who still have 10-20 years (or more) to save for retirement should try to adopt a stronger comfort level with having a high percentage of stocks in their portfolio.

4. Use a target date fund

One good way to make sure your retirement savings are invested appropriately for your age is to use a target date fund, or other professionally managed asset allocation. If your company's 401(k) plan offers it, a target date fund can automatically invest your money in an age-appropriate blend of stocks and bonds, and then gradually rebalance the portfolio as time passes and you get closer to retirement. For example, some target date funds might start out with 90% stocks and 10% bonds, and after twenty years, be at 50% stocks and 50% bonds.

Target date funds can help you get an appropriate mix of investments to get the best possible returns, while managing risks and relieving you of the burden of too much complex decision making and research about your investments. According to a 2023 Vanguard study, as of 2021, 44% of employees who had voluntarily signed up for their employer's retirement savings plan were using target date funds or other professionally managed allocations. This was up from only 8% of employees in 2006.

More people using professionally managed allocations, whether it's target date funds or robo-advisors, is a good sign that more people will benefit from the right blend of stocks, bonds, and other assets to grow their wealth for retirement. Taking some (smart, calculated) financial risks now by investing in stocks can pay off in the future. And missing out on stock market gains can be damaging to your retirement plans.

Bottom line

To make your 401(k) money work harder for you, start by getting every possible dollar of employer matching contributions. People who are age 50 and up should take advantage of catch-up contributions to add an extra $7,500 of 401(k) savings in 2024. Target date funds or other professional financial advisory help can get you the right blend of stocks and bonds to suit your long-term investment goals.