Taking full advantage of your 401k plan today can help you achieve financial goals sooner and provide sufficient income for a comfortable retirement. For most working individuals, Social Security checks alone will not be enough to maintain the standard of living they are accustomed to once they stop working. If you're fortunate, your employer offers a 401k plan which, if used wisely and to its fullest potential, can provide additional income during your golden years. 401k plans vary significantly depending on the employer who sets the rules. The only way to maximize the benefits of the plan is to familiarize yourself with it and make informed decisions.
Things you should know:
- What is the maximum percentage of your salary that you can contribute?
- Does your employer match contributions? If yes, what is your minimum contribution before your employer starts contributing, and what is the maximum?
- How many years do you need to work at the company (so-called vesting) to be eligible for your employer's contributions to your 401k?
- How often can you switch among available investment options?
- Are earnings posted to your account on a weekly, monthly, or quarterly basis? When do you receive your account statements? Note, it is always more beneficial if earnings are added to your balance more frequently.
- What methods can you use to access the account? By phone, online, or only in writing?
- Have you diversified your money among different investments to reduce risk?
- Have you learned enough about the investments you are using? Do you know that 401k plans are not insured by the federal government, and their investments carry risks? However, different investments carry varying degrees of risk. It is always best to diversify your investments by investing in different types of assets.
To learn more about 401k investment options, ask your plan administrator for information. Financial magazines, prospectuses, and brochures can be excellent resources for understanding specific investment options.