Reviving your 401(k)

A few weeks ago, reporter Rebecca Lake from U.S. News & World Report wrote an article titled “How to revive your 401(k) in your 50s,” providing readers with tips on how they can breathe life into this retirement savings vehicle. I shared some of my insight with Rebecca, but wanted to expand on the theme here with additional viewpoints. For readers looking for ways to revitalize a neglected 401(k), check out some tips below.

  1. Know how much you need to save. To tell if your retirement savings are on track, you need to know how much money you’ll need throughout retirement. Typically, it’s recommended to have 70 to 90 percent of your pre-retirement income available in a savings account. If you’re not on track to meet your retirement goals, you can either adjust your objectives by downgrading your lifestyle through retirement or change trajectory by increasing the amount you’re saving for retirement.
  2. Take advantage of catch-up contributions. By not taking advantage of catch up contributions, you may be missing out on an additional $90,000 over a 15 year span and the interest these savings would have accrued.*If you’re unable to max out your 401(k) contributions but have been a diligent saver over the years, you should aim to save around 10 percent of your income.
  3. Rebalance your portfolio. I like to say that this is the only “free lunch” that investors get. Rebalancing allows you to take profits from securities that have performed well and sell them against those that are underperforming. Periodically, you should consider reassessing your portfolio to ensure that your allocations aren’t too far off balance. One of the benefits of a 401(k) plan is that as you automatically make contributions, it has the ability to self-balance.

No matter how young or old you are, it’s crucial to get retirement plans on track. By reviewing and making adjustments, investors can tee themselves up for a successful and stress-free retirement.

*The $90k referenced assumes current catch up contribution rates and does not include any potential growth. That number is indexed for inflation and will increase periodically.