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You are here: Home / 401K / 401k Tips 2021 — Things to Do to Your 401k If You Wanna Be Rich

401k Tips 2021 — Things to Do to Your 401k If You Wanna Be Rich

August 18, 2021 by Retirement

For most of us, including the early 20s version of me, an introduction to retirement savings happens like this: You get your first big job, HR tells you that you’ll be enrolled in a 401(k) program, you say “Great!” and then…you never think about it again. (Okay, fine, you might, but probs not until you’re 35.)

Honestly, I do get it—there are few terms less sexy than “retirement account.” But there are few things more sexy than being able to buy nice things, travel, and just generally enjoy life after you stop working (i.e., retire). And you can’t do any of that without savings, so no matter how old you are rn, it’s time to Do More.

Let’s start with a lil background: A 401(k) is a savings account into which a nugget of each of your paychecks goes. As that adds up over time, it’s also invested into mutual funds that, over the course of many years, turn it into even more money.

If you set it and forget it, a 401(k) will grow tax-free until you retire and start making withdrawals to pay for, say, a vacation home in Bermuda (what? This can’t be only my dream). But! There’s a lot that can happen between now and 2060 (cue existential crisis), and you can and should act now to make sure you’re fully loaded by the time you’re ready to cash out. Here’s how to do exactly that!

1. Customize your paycheck input

The percentage of each paycheck that goes into your retirement account is a really big deal, and your company’s default setting (usually somewhere around 3 percent) is probably too low, says certified financial planner Rachel Sanborn Lawrence, director of advisory services at Ellevest. Exactly how much you need to put away each month really depends on how rich you want to be and how soon you want to be that rich, says Priya Malani, cofounder at Stash Wealth, an online investment platform. You can figure it out using an online calculator like the one at NerdWallet.

2. Meet your (company) match

BTW, if you’re lucky enough to have an employer match program—where your company matches a portion of whatever you put into your 401(k)—make sure you’re contributing as much as your employer is willing to. If it will match up to 3 percent but you only put in 1 or 2 percent, you’ll be missing out on extra free money. Of course, you may not make enough to meet your ideal percentage right now, and that’s okay. Get as close as you can, then consider setting up an automatic increase of 1 percent each year, says Malani. You likely won’t even notice it, and if you do, you can always change it back.

3. Make sure you’re invested in ~something~

Surprise! Some companies’ default 401(k) settings are to just keep your money chillin’ as cash (aka in a “money market account”) until you tell them what to do with it, says Malani. Not ideal—you want this $ to be invested in mutual funds so you can earn the interest and dividends you’ll need to be a bajillionaire (or close to it) by the time you retire. Which leads us to…

4. Start with a “target date” fund

This is annoying, sorry, bc not every company offers the same types of mutual funds. But in general, look for a fund that’s made for people who are retiring around a certain year (for you, again, that could be 2060ish). Funds with far-off target dates carry a bit more risk than those with nearer target dates, but they’re still solid investments for people who aren’t retiring for a LONG time (again, you!)—mostly because higher risk can = higher reward over the long term.

5. Then read the rest of the menu

While an age-focused fund is a great place to begin, you could make even more with other investment options, says Sanborn Lawrence. The overall goal is to put your money across many industries and types of investments (peep the “portfolio analysis” section of your fund’s profile, if it has one). This way, even if the stock market tanks, your account won’t be wiped out.

Oh, and any fund that charges more than 1 percent (look for the words “expense ratio”) to maintain—yes, you pay that fee—probably isn’t worth it, adds Kiersten Saunders, cofounder of the personal-finance blog Rich & Regular. She looks for funds with fees around 0.1 percent.

6. Get a Roth 401(k)

This sorta new way to invest in your retirement lets you pay taxes on the money you put in now versus when you retire. And that’s awesome, since you don’t know what income tax bracket you’ll be in (and taxed on) 30 or 40 years from now, says money coach and former stockbroker Charly Stoever.

If your company offers this option, a smart thing to do is put half of your retirement savings into a traditional 401(k) and half into a Roth 401(k). This’ll allow you to strategically pull money from either account later, depending on how much you’re making that year. If your company doesn’t offer a Roth 401(k), reach out to an investment firm like Fidelity to see if you can set up an individual Roth retirement account (they’re typically called Roth IRAs). Even putting $100 into one every month from the time you’re 25 until you retire could add up to hundreds of thousands of dollars, if not more, according to financial expert Suze Orman.

7. Don’t leave old 401(k)s behind

These accounts can live on long past your last day at a job. So before you head out, talk to HR or the investment firm that manages your account. They can help you roll the money into your new employer’s 401(k) program or your own solo retirement savings account.

If you think you’ve already accidentally abandoned a 401(k), call your old company or use a site like Unclaimed.org to bring it home safe and sound where it belongs. Because remember: Only you can help it grow big and strong, bb.

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Sesali Bowen
Sesali Bowen is a writer, media personality, and cultural commentator with a knack for plus-sized style.

This content is created and maintained by a third party, and imported onto this page to help users provide their email addresses. You may be able to find more information about this and similar content at piano.io

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