Q2 401(k) Alert
Are you 75 and still working?
I doubt that was your retirement plan. Yet according to the U.S. Census Bureau, there are 10,000 baby boomers retiring each and every day.
However, those new retirees have saved very little for their golden years.
How little, you ask?
According to a 2018 study by Northwestern Mutual, 21% of Americans have saved ZERO dollars for retirement and one-third have less than $5,000.
The average for all Americans is a more respectable $84,821, but that’s hardly enough to finance a retirement that may last 30 years or more.
Between low savings and the measly $1,400 from your average Social Security check it isn’t a surprise that 43% of retirees struggle to make ends meet, as noted by the Consumer Financial Protection Bureau.
That’s why today I’m going to help ensure you enjoy your golden years and not work them away… starting with your 401(k).
And with that said I want you to know this is the same advice I give my own two daughters. Because if I give this advice to my own family, you know it’s good.
Understanding Your 401(k)
401(k) plans invest your contributions into market assets such as mutual funds, stocks, bonds and precious metals.
Not all 401(k) plans are governed the same way. Your employer may or may not match your contributions. Additionally, different 401(k) plans offer different options to invest in.
Whatever the unique stipulations of your 401(k) plan are, you most likely can still make changes to how your money is allocated.
You also have other options for maximizing the most out of your retirement savings plan.
Especially if you follow the five rules I will outline below.
Let’s get started.
5 Rules to Maximize Your 401(k)’s Value
Rule #1: The 6% Rule. Contribute as much as you possibly can but contribute AT LEAST 6%. Why 6%?
Most (not all) companies match 50 cents for each dollar that you contribute up to 6%. In short, you get a FREE 3% match if you put 6% of your pay into your 401(k). It’s like giving yourself a pay raise, effectively allowing you to stash away a total of 9% of your salary toward your retirement.
Rule #2: Buy, Don’t Run. My daughters are still in their 20s and they will be contributing to their IRAs for another 30–40 years. The most important thing for anyone with a long time horizon is to keep buying no matter what the stock market does.
My daughters were able to buy some pretty cheap shares at the end of 2018!
Rule #3: K.I.S.S. Yes, keep it simple, stupid. The investment offerings vary from 401(k) to 401(k), but almost all of them include index funds.
I tell my daughters to put 50% of their money into an S&P 500 index fund, 25% into a small-cap index fund (like the Russell 2000) and 25% into an international stock fund.
Rule #4: Split the Raise. Every time you get a raise, I suggest you put 50% of that raise into your 401(k) contribution. If you get a $200 a month pay raise, keep $100 for yourself to spend but increase your 401(k) contribution by $100 as well.
Rule #5: Watch but Don’t Touch. Enjoy your paper gains but don’t panic over your paper losses, such as we said in the fourth quarter of 2018.
Bottom line: I’ve been in this business for over 30 years and I’m pretty good at what I do. But I’m a family man first.
Which means if it’s good advice for my daughters… then it’s good advice for you too.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch