Not everyone has access to a 401(k) plan through work, but if you're among the fortunate ones, you should know that you have a real opportunity to amass some serious retirement savings. And if you make these moves in the year new, you'll be doing your future self a major favor.
1. Contribute enough to claim your full employer match
A large number of employers that sponsor 401(k) plans also match employee contributions to varying degrees. The specifics of your match will depend on your company's policy, but it pays to put in enough of your own money to snag that match in full. If you don't, you're really just giving up free cash.
Imagine your employer is willing to match contributions totaling up to 5% of your salary. If you earn $50,000, that's a free $2,500 coming your way, assuming you contribute $2,500 yourself. And remember, when you get your employer match, you don't just get a lump sum of money that sits in your account and does nothing; you get a chunk of money you can invest for added growth. In fact, if you were to invest $2,500 for 30 years at a 7% average annual return, you'd grow it to $19,000. And that's a nice little boost for your nest egg.
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2. Check up on your investments
The 7% return we just talked about? It's reasonable for a stock-heavy portfolio, and it's also a good benchmark to strive for if you want to grow your savings at a decent pace. If your 401(k) investments aren't offering as good a return as they could be, it may be time to mix things up, so take a look at how your portfolio has performed and see if changes are in order. It could be that you've invested your money too conservatively by focusing on bonds more so than stocks, which isn't a great move if you're fairly young.
At the same time, take note of the fees you're paying on your investments. Actively managed mutual funds charge higher fees (known as expense ratios) than index funds, which are passively managed and simply track existing market indexes, like the S&P 500. Sometimes, those higher fees will give you better performance -- but make sure that's the case if you're paying them, and if not, consider making some changes.
3. Save your entire raise
Earlier, we talked about the importance of snagging your full employer match. But even if you're already doing that, and have been for years, it still pays to try to increase your savings rate from year to year. And if you're getting a raise in 2020, you have an easy opportunity to ramp up by allocating that entire pay boost to your nest egg. After all, that extra money in your paychecks is cash you're not used to having, so if you send it into your 401(k) off the bat, you won't end up missing it.
The more strategic you are in managing your 401(k), the more money you stand to retire with. Make these important moves in the new year, and you just might see your savings balance really start to take off.
