Many Americans saw the balance in their 401(k)s drop precipitously during the Credit Crisis in 2008. Some just had not chosen diversified portfolios, others suspended contributions all together. So many of these retirement accounts just got off track over the last couple of years.
Now with the economy slowly (very slowly) improving, there is a new sense of urgency about saving for the future. There are a number of things the you can do to get your 401(k) back on track. Here are just a couple of ideas I think can help.
1. Increase your withholding to 10%. Like I mentioned before, some people suspended their contributions completely. The best time to invest is when things are on sale. Fear is a great motivator, it can cause us to make some irrational decisions like not buying low. Make a committment to increase your 401(k) contributions to at least 10%. Most experts say that saving between 10-15% pre-tax will keep you on track for a comfortable retirement. Challenge yourself, if you don’t feel as though you can do 10% right away, increase the percentage by 1% every 6 months till you get there.
2. Choose a diversified portfolio. Most 401(k) plans have a diversified menu of investments to choose from. I have worked with many employer retirement plans over the years, and the one thing that can cause the “deer in the headlights” look is the 401(k) menu of funds. It doesn’t have to be daunting. Simply choose an asset allocation or target retirement date mutual fund. These funds offer a diversified portfolio based on your risk tolerance or the date which you plan to retire. All the rebalancing and portfolio decisions are made for you at that point.
3. Consolidate your retirement accounts. Lots of Americans switch jobs every year, and leave their balance in that employers retirement plan. Don’t forget about this money. Consolidate it into your new employers plan or a rollover IRA. Make sure all this money is continuing to work hard for you and you know what you are invested in. By doing this, it will allow you to more easily manage the asset allocation across all your investments.
A few last tips: If your 401(k) offers automatic contribution increases this is a great way to get to the 10% contributions. Some plans also offer automatic rebalance of your funds, which will keep your asset allocation in its correct percentages. Finally, consult with a good financial advisor that specializes in business retirement plans. I happen to know one…Me!