You build a career and diligently save money in your 401(k) so you can live comfortably in retirement, but do you truly understand what’s going on in your retirement investment account? A 2018 survey from the Employee Benefit Research Institute found that three in 10 workers don’t know what to do with their retirement savings. Below, are a few common misconceptions to avoid to help get you on the right track when it comes to your retirement efforts.
“I can just sign up and forget about it.” Enrolling in your company’s 401(k) plan and setting up automatic contributions is a good start. However, many participants aren’t aware that 401(k) plans are often self-directed which means if you just sign up you’re investing without picking any of the actual investments your hard-earned money is going towards. Many companies do have default options based on age, but they are often on the conservative end. To help set yourself up for long-term success, take the time to learn about the investments, your risk tolerance and what is right for you based on your goals. And, don’t forget to periodically increase the amount you are contributing. A good rule of thumb is to defer more of your paycheck each time you get a raise.
“I can only defer up to my employer match.” It’s a great perk if your employer offers a match on your contribution, but that doesn’t mean that’s the maximum you can contribute. For 2018, the maximum contribution an individual can make to a 401(k) plan is $18,500 which does not include the employer match. So, unless you’re making $300,000 a year and are contributing more than six percent of your salary to your 401(k), you’re permitted to save more. If you are able, it is wise to take full-advantage of your employer’s match with the goal of maximizing your contribution to the extent permissible under the law.
“I am required to leave old 401k(s) at previous employers.” While you can leave old 401(k)s at previous employers, it is not required and it may not make sense to do so depending on the expenses of the plan, quality and breadth of investment selections offered, ease of access to your funds and ability to make changes – just to provide a few examples of things to consider. In addition, you may be more likely to forget about a stray account and then potentially lose those assets when it comes time to access funds for retirement income. While a few thousand dollars may not seem like a large contributor to your overall net-worth, over time that money can work in your favor to turn a few thousand dollars into a larger sum for those golden years. Combining 401(k)s from previous employers into one account makes the tracking of your investments easier and more transparent.
Have these myths been preventing you from making the most of your 401(k)? While starting to save early in your career is the best approach, it is never too late. Getting organized and educated about your retirement savings can help to set you up for a worry-free retirement. If you are interested in advice about creating or managing your financial plan, Univest Wealth Management advisors are here to help. Contact us at 877-723-5571.
Univest uses the marketing name Univest Wealth Management to provide (1) investment and wealth management, fiduciary services and trust services through its subsidiary Univest Bank and Trust Co., (2) specific fiduciary and investment advisory services through Girard Partners, Ltd., (3) securities products, insurance products and brokerage services through Univest Investments, Inc., a registered broker-dealer and member of FINRA and SIPC, and (4) investment management and related products and services to Pennsylvania municipal entities through TCG Advisory, Inc. Investment products and services are not FDIC insured, and are not a deposit of Univest Bank and Trust Co. or bank guaranteed, and are subject to risks, including possible loss of any principal amount invested.