Momentum - Business to Business Online Magazine MOMENTUM November 2019 | Page 36
FINANCIAL FOCUS
KRISTI TREVINO
Financial Advisor
Edward Jones
www.edwardjones.com/kristi-trevino
TAKE GREATER CONTROL
OF YOUR 401(K)
I
f your employer offers a 401(k) or similar plan,
you’ve got a powerful retirement-savings tool at your
disposal. And yet, how well you do with your 401(k)
depends greatly on your choices and actions. What
steps can you take to maximize the benefits of your
plan?
For starters, be aware that your 401(k) may come with
what might be called “standard” features, which you
should review to determine their applicability to your
situation. These features include the following:
• Default deferral rate – When you take a job, your
employer may automatically enroll you in the
company’s 401(k) plan and assign a “default”
contribution rate – the percentage of your salary you
will put in to your 401(k). Many companies choose a
default rate of 3 percent, although, in recent years,
there has been a move toward higher rates, even up
to 6 percent. Unfortunately, too many people don’t
question their default rate, which could be a problem,
especially if it’s at the lower end. If you want your
401(k) to ultimately provide you with as many financial
resources as possible, you will likely need to contribute
as much as you can afford. So, be aware of your default
rate, and, if you can possibly afford it, increase that
level. And every time your salary goes up, consider
boosting your contributions.
• Investment mix – When you’re automatically enrolled
in your 401(k), the amount you might initially
contribute isn’t the only “off the shelf” feature – you
also might be assigned a default investment option.
One common default investment is known as a
target-date fund, which generally includes a mix of
stocks, bonds and cash instruments. Your 401(k) plan
provider, or your human resources area, will typically
base this mix on your age and projected retirement
date. Usually, this fund will grow more conservative
over time, reflecting the need to reduce the portfolio’s
risk as you get nearer to retirement. However, you
may not be obligated to stick with the default option.
Most 401(k) plans usually offer several options from
which to choose. Ideally, you’d want to spread your
investment dollars among a mix of these investments
to give yourself the greatest growth potential, given
your risk tolerance and time horizon. And always
keep in mind that your 401(k) is a long-term vehicle,
designed to help you prepare for a retirement that
may be decades away. Consequently, try to discipline
yourself to look past the inevitable short-term drops in
your portfolio.
• Matching contributions – If your employer offers a
401(k) matching contribution, you should
certainly take advantage of it. Consider this:
If you employer matches 50 cents for every
dollar you contribute, up to 6 percent of your
pay, and you contribute the full 6 percent, you
would, in effect, be receiving a 3 percent pay
raise (50 percent of 6 percent). That’s like a 50
percent rate of return even before you invest
this added money.
Taking control of your 401(k) in the ways
described above can help go a long way
toward getting the most from your plan –
and, as a result, may help get you closer to
supporting the retirement lifestyle you’ve
envisioned.
This article was written by Edward Jones
for use by your local Edward Jones Financial
Advisor.
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MOMENTUM