Personal Finance

Getting The Most Out Of Your Company's 401k Retirement Savings Plan

An employer’s 401k plan is the main means of saving for retirement for most Americans. A 401k can be an effective tool in your retirement savings toolbox if you make the most of what it has to offer.

Here are some ways to maximize your 401k plan:

Invest According to Your Financial Circumstances and Outlook

Invest in line with your risk tolerance, future financial goals and with current financial situation. Often people in their 20s are told to place most or all of their 401k contributions into stable-value options or perhaps its money market fund.

These are low-risk investments that may provide a small return in the short term, but may not allow enough to be put away for retirement. On the other hand, some older Americans who invested too much of their 401k in equities have suffered losses.

Be Conservative When it Comes to Company Stock

Analysts and financial planners say to keep your company stock at no more than 10 percent of your total portfolio. It is easy to think that just because you work for a company that has a healthy stock price that you should put all or most of your investment eggs in that basket.

But you could be taking a big risk if you take this approach. You could be holding most of your stock in a devalued corporation if the company’s stock plummets or if the company suffers any setbacks.

Make Sufficient Contributions into your Plan

If you can, try to make a bigger contribution into your plan. Find an contribution that gets you the maximum amount that your employer can match.

Most 401k plans have a default deferral level between 1 and 3 percent. Making a larger contribution and getting the most out of the company match may make for a more comfortable retirement.

Take Advantage of Other Financial Opportunities

Your 401k should a part of a larger retirement portfolio. It shouldn’t be your only means of saving for when you stop working. Other investment opportunities could include your spouse’s current 401k, their former 401k and Individual Retirement Accounts and other investments.

A financial planner or wealth management professional can help you look into options for building your nest egg beyond your employer’s 401k plan.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.