401(k) for the Youth

This week I had the pleasure of doing a 401(k) educational meeting for a client. Once a year I like to meet with the company’s employees, go through the plan, discuss the funds, and answer questions about savings and retirement.

If you read my blog with any regularity, you know the idea or the concept of retirement is a pet peeve of mine.  The media markets retirement as if it were Fantasy Island. Retirement is just another word for not working and how am I going to fund my life at that point. But it’s not a game.

The company that I visited has a lot of young and enthusiastic employees. Most of them are enrolled in the 401(k) plan. Unfortunately, not everyone is deferring a portion of income into the plan; most are not deferring enough.

Here is my list of to-dos for your 401(k) plan. Parents, feel free to share it with your working children.

·         Participate, participate, and participate.

·         Try to defer at least 10% of your salary, with a goal of reaching 15%.

·         Defer enough to max out on a company match if it is available. It’s FREE money!

·         Sign up for auto-escalate so you are automatically increasing the amount you are contributing to your savings. If you get a raise, give yourself a raise in how much more you will save.

·         If your plan doesn’t offer target date funds, demand that it does.

·         If your plan doesn’t offer low-cost index funds, demand that it does.

·         Diversify between stocks and bonds. If you are young, you can defer more to stocks than bonds. If you are risk adverse, talk to the advisor for your plan about an appropriate asset allocation.

·         The world is a big place, and half of the world’s companies are outside of the United States. Have some international exposure to your portfolio.

·         If you are concerned about how your money is invested and what kind of companies you are invested in, ask your employer about socially responsible funds.

·         Your 401(k) is portable: if you leave your company, you can roll your account into your new employer’s 401(k) or into an IRA account. You can also leave it in your employers 401(k). I would discuss with an advisor the benefit or drawback of doing so.

·         If you are older than 50, you can put up to $24,000 annually into your 401(k) account.

·         It’s important to check your account balance at least twice a year. Make sure you have your log-in credentials.

·         Don’t look at your account every day; focus on the long term, not the day to day.

·         Pick a day to rebalance your account once a year; your birthday is a good reminder.