If you're building a retirement nest egg in a 401(k) plan, good for you. The reality is that you'll need savings of your own to fall back on in retirement because Social Security benefits probably won't be enough to sustain you.
But it may be that you're unhappy with the progress you're making in your 401(k) plan. If your savings aren't growing at a rapid enough clip, these could be the reasons why.
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1. You're not snagging your full employer match
One advantage 401(k) plans have over IRAs is that the companies that sponsor them often match worker contributions to some degree. But if you're not snagging your full 401(k) match, you're leaving free money on the table -- and you're potentially stunting your 401(k)'s growth.
Remember, every matching dollar your employer is willing to give you is a dollar you can invest. So if you pass up $1,500 in 401(k) dollars from your employer this year, you might think it's not such a big deal. Only if your 401(k) typically delivers an average annual 8% return (which is a bit below the stock market's average) and you're 30 years away from retirement, not snagging that $1,500 could mean denying yourself an extra $15,000 in savings. That's actually a pretty big deal.
2. You're not increasing your savings rate from year to year
The nice thing about 401(k) plans is that the amount you can contribute tends to rise from one year to the next. But if you're not upping your savings rate, you're doing yourself a big disservice.
Going forward, aim to earmark your annual raise for your 401(k). If you do so at the very start of the year, you won't come to miss that money or even notice it's gone.
3. You're not investing aggressively enough
If you're the risk-averse type, you may be inclined to load up on safer investments in your 401(k). But doing so is apt to limit the extent to which your savings can grow.
Even if you're not all that risk-averse, you may have decided to invest your 401(k) in your plan's default option, which is most likely a target date fund. These funds are convenient in that you can set and forget them. But target date funds commonly err on the side of investing conservatively, and that may not serve your needs in the long run.
A better bet? Aim to put your money into broad market index funds that give you nice exposure to the stock market. You might bear some risk, but by playing it too safe in your 401(k), you take on a different risk -- not having enough money to pay your bills in retirement.
It's important to come to terms with the fact that you can't retire on Social Security alone early on in your career, and to compensate by funding a 401(k). But if your plan balance isn't growing in a manner you're happy with, it's important to get to the root of the problem -- before your retirement date nears and you find yourself scrambling.
