How to Supercharge Your 401(k)
The economy is humming along and markets are hitting new highs.
It’s no wonder the lamestream media aren’t talking about one of the biggest American financial crises ever… But the numbers don’t lie.
Most Americans are woefully undersaving for retirement.
Even the smart Americans who are saving know little about the tools they are using… such as their 401(k) plan.
In fact, 63% of Americans admit to knowing little or nothing about their 401(k).
Now, I may not be able to solve America’s retirement crisis, but I can help solve yours.
And that’s what matters. Let’s get started.
Only Fools Walk Away From FREE Money
You’d be a damn fool to walk away from any opportunity that turns $70 into $150 overnight. And the sooner you stop the better.
Consider the results for someone who starts at 20 years of age versus someone who starts at 30 years of age.
Saver No. 1 who starts at 20 saves $100 a month for 10 years and stops contributing at 30 but leaves the money in the market for the next 30 years until 60 years of age.
Saver No. 2 doesn’t start until he is 30 years old and invests $100 a month for the next 30 years. Who do you think has more money, assuming the same 7% annual return?
Saver No. 1 has $141,303 and Saver No. 2 has $122,708. And if Saver No. 1 continued to contribute $100 a month, his/her account would be worth $264,112, just from a $100 a month contribution. And if you factor in the $50 employer match, the account value increases to almost $400,000!
Listen, I know saving is hard when you’re living paycheck to paycheck. But even a modest $100 a month will turn into a mountain of money.
More importantly, you’ll be making solid progress to financial freedom. And that’s priceless when you’re playing in your postseason retired years.
6 Rules for Retirement Savings
Here’s some advice I give to my close friends and family. I don’t lead them astray. I won’t do the same to you.
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.
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.
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 saw in the fourth quarter of 2018.
Now for my last bit of advice:
Max out Your 401(k) Contributions
Good news: 401(k) contribution limits got an increase in 2019. Contribution limits rose from $18,500 to $19,000 for workers under 50, while limits for workers over 50 rose from $24,500 to $25,000.
Do yourself a favor and find a way to hit those new maximums with your 401(k). If you simply can’t hit the $19,000 or $25,000 maximums, at least force yourself to sock away more this year than you did the year before. And don’t forget the importance of making your savings work as hard as you do.
My advice is to pack your 401(k) with low-volatility dividend-paying stocks.
They have proven time and time again to beat the pants off the S&P 500 and do so with lower volatility.
More money with less risk is the best way to build long-term wealth.
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch