Preparing Your For Retirement
Whether your retirement is decades away or years away, you should be formulating plans to ensure that your retirement is spent pursuing your hobbies and goals rather than trying to eke out a living well past retirement age. One of the most common forms of savings for retirement is the 401k plan, which allows you to defer taxes on money you save for retirement until you actually make a withdrawal. But if you invest improperly, your 401k plan can be a losing proposition. Here are a few tips to ensure your 401k helps your retirement rather than hinders it.
Save Early And Save Plenty
For those of you who are many years for retirement, a 401k for retirement is important, since it can provide a significant source of income for you. Even at small growth rates, the amount of money for retirement from a 401k plan that is invested in regularly is significant. Get used to putting a certain amount of cash into your 401k each month. If you start when you’re young and get in the habit, you won’t miss that cash through the years.
Make Sure You Get Matching Funds
One way to increase the amount of money in your 401k retirement plan is to make sure you’re paying at least as much as your employer is willing to match. Most employers will match a small amount, even as low as half a percent, of your income in your 401k if you invest that much. Since this is as close to free money as you’re going to get, it’s best to make sure you’re company is matching as much as possible.
Diversify
Since the money in a 401k retirement plan has to be invested some place, make sure that you diversify your portfolio. This means not investing all your money in one sort of industry, such as high tech stocks, and definitely should not mean investing it all in your company. Learn from mistakes such as what happened to Enron employees, who invested primarily in Enron stock, and lost the value of their 401k retirement plans when Enron stock plummeted.
Leave The Money Alone
Unless it’s a matter of life or death, don’t fall in to the temptation of taking money from your 401k retirement fund before you’ve retired. Penalties for early withdrawal exist, which included taxation twice over for the withdrawal for 401k funds, once when funds are withdrawn, and again when it comes time to pay income tax. You don’t get those penalties if you wait until you’re 59 1/2 , so don’t touch that money! By following these few rules, you’ll have a healthier 401k for your retirement, whether you’ve started saving at 20 or at 50.