Smart Retirement Moves for Your 401(k)
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Want to up your game and maximize your 401(k)?Learn what smart retirement moves you can make to optimize your portfolio!
How to Make the Most of Your 401(k)
Last week we look at retirement planning from a high level – figuring out a ballpark of what you’d like your retirement to look like as well as how it fits in with what you’re doing now.
This week we’re focused on a very specific part – figuring out what to invest in when there are plenty of options.
Since I’m not a financial planner and I have no idea of your very specific finances, this episode will cover the process.
In this episode we’ll get into:
- Prioritizing your investments
- Look at whether index funds are really a smart move
- Optimizing your 401(k)
Hope you enjoy!
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Resources to Rock Your Retirement
Ready to invest for retirement? Here are some fantastic resources to set things up and help you plan for your retirement together.
- Rock Retirement
- Investing Made Simple
- Free 401(k) Analysis:
blooom - The Secret Sauce to Financial Independence & Early Retirement
- Retirement Answer Man Podcast
- Best Budget and Money Apps: Personal Capital, Tiller, Mint
- Automatic Saving:
Qapital - Jumpstart Your Marriage and Your Money
- Financial Independence and Parenthood
- How to Set Up Your Retirement with the Right Tools
- How to Get Your Spouse Onboard with Financial Independence
How Much Should We Invest in Our 401(k)?
Investing in a 401(k) has some huge financial advantages.
Many of 401(k)s offered at work have your contributions go in there pre-tax which is a double win.
That means more money goes into your account AND it lowers your taxable account now.
Another pro with 401(k)s is that your company may offer a match for your contributions. Company matches are basically free money.
It’s not a given, so check. If they do offer a match, put in what you can do to get it.
Now, if you have
Because the interest rate of your debt is most likely going to be higher than the return you get with investing.
Think of it like being in the middle of a lake on a boat with a large hole on the bottom. Fix that problem first.
Here’s where people disagree and get into a huff in the personal finance sphere. Some gurus like Dave Ramsey want you to not contribute at all to your 401(k) until you’re out of consumer debt. (Everything, but your mortgage if you have one.)
I absolutely agree that debt limits your options so getting rid of them should be your focus. However, I think you have some flexibility here.
NerdWallet ran the numbers and found that you can still come out ahead by getting the match and directing the rest of your money towards debt.
Don't forget if you don’t have to worry about those payments anymore, you have that much extra to go towards investing later on.
Are Index Funds a Smart Investment for My 401(k)?
Since each 401(k) is different and you have your own specific goals and risk tolerance, we’re going to focus on what to consider so you can make the best choice for you and your goals.
Typically when you enroll in a 401(k) there’s a list of funds you can invest in. Mutual funds can be fantastic because you’re diversifying.
These funds can vary depending on plan. You might see names like Black Rock, Vanguard, American Funds, and Fidelity.
But there are two main..guess you can call them categories of investing for funds – passive and active.
With active, these funds are managed by someone who has a team under them. Their goal is to beat the market so they’ll spend time researching.
To pay for those costs, you’ll usually see higher fees which you see as expense ratios on your end.
Then you have passive which is basically automated. Instead of trying to beat the market, like S&P 500 – 500 largest U.S. publicly traded companies by market value- it just rounds it up and buys them.
So when you invest in an index fund, you’re getting that index. Because it’s automated, the costs for these is much less than active.
Now let me ask you something – which do you think comes out ahead, active investing or passive investing?
The evidence shows time and again that passive investing typically has better returns. One study found over a 15 year period that over 90% of actively managed funds did worse than their compaarable benchmarks.
So basically you’re paying more money and less likely to get the returns you want.
Yep, you’re better off tracking with an index fund, than hoping to beat the market with an active fund.
Key Takeaways on Optimizing Your 401(k)
Before we close up I want to focus on some key takeaways I got and we’re using for our investments.
- Look at the data before investing.
- Make sure you’re getting value.
- Have a system to keep to your system and goals.
Want to swap ideas, stories, or ask some questions about investing?
Are you two going for the match while paying off debt or are you all in with the debt pay off first?
Join me in our free and private community Thriving Families over on Facebook.
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Music Credit
Like the music in this episode? Our theme song is by Gentle Regime. Additional music by Lee Rosevere.
