It's hard to believe, but 2017 is already in full swing! While you're making and pursuing New Year's resolutions in various parts of your life, don't forget to focus on your finances. Now is the perfect time to set savings goals and form smart financial habits. A great place to start is with your 401(k) - which for most people is their largest or only source of retirement savings.*
Here are my top suggestions for starting the year on a good note when it comes to saving for retirement:
Rebalance after a strong year for stocks
We're coming out of one of the largest stock market rallies in recent memory, and while you may have seen a bump in your balance, these dramatic market movements could have also left your asset allocation out of alignment. Certain stock sectors like financials and energy performed particularly well at the end of the year, meaning some sectors may be over- or under-weighted in your 401(k). While your 401(k) is a long-term investment and you shouldn't make drastic changes every time there is volatility in the market, the new year may be a good time to rebalance so that your investments reflect your risk tolerance and other preferences.
Be mindful of company stock allocations
If you work in a sector that benefited from the rally - like industrials or materials, in addition to the ones I mentioned above - you might be tempted to allocate more 401(k) dollars to your company's stock. As a general rule, though, company stock should make up no more than 20% of your overall 401(k) portfolio.
Review your beneficiary designations
Did you make any major life changes in 2016, like getting married or divorced, or having a baby? If so, you may want to review your 401(k) beneficiary designations and make sure they're in line with your current situation.
Look into your old 401(k)s
If you've switched jobs in the last few years, you may still have a 401(k) from a previous employer. While you're making a fresh start in 2017, take stock of any older accounts and decide what you'd like to do with them. You have a few options for addressing an old 401(k), which may include rolling over your retirement plan assets to an IRA; keeping your assets in your former employer's plan, if permitted; rolling over assets to a new employer's plan, if one is available and rollovers are permitted; or taking a cash distribution (taxes and possible withdrawal penalties may apply).
Whichever option you select, be sure you carefully consider and understand all of your available options prior to making a decision, including the benefits and limitations of each option and that your investment choices reflect your current preferences. With this resolved, you can focus your attention on your current plan.
Save where you can with low-cost investment options
A common resolution is to cut down on spending, and you can apply that principle to your 401(k) as well. Take a close look at the individual funds available in your plan with an eye toward the investment management fees they charge. For example, index mutual funds and exchange-traded funds typically have low investment management fees.** If your plan offers these types of funds, this may enable you to put less of your retirement savings toward fees and potentially put more into your retirement plan account.
Call in a professional
If you're uncertain about how to follow through on any of the steps above, don't worry - there are several ways to get help. Many 401(k) plans offer access to professional 401(k) advice, which can aid with asset allocation, setting contribution levels and more. According to a recent survey,* roughly three-quarters (74%) of plan participants would feel very or extremely confident making 401(k) investment decisions with the help of a financial professional, while just 44% would feel that same level of confidence on their own. Who wouldn't like to start the year with a little extra confidence?
You're ready to face the year ahead knowing how to make your 401(k) work for you. Again, your 401(k) is a long-term investment that you'll contribute to and maintain throughout your career. While January is a great time to revisit your allocations and other settings, don't forget to make periodic adjustments as you go. Happy New Year, and happy saving!
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* This online survey of U.S. 401(k) participants was conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is neither affiliated with, nor employed by, Schwab Retirement Plan Services, Inc. The survey is based on 1,000 interviews and has a 3 percent margin of error at the 95 percent confidence level. Survey respondents worked for companies with at least 25 employees, were current contributors to their 401(k) plans and were 25-70 years old. Survey respondents were not asked to indicate whether they had 401(k) accounts with Schwab Retirement Plan Services, Inc. All data is self-reported by study participants and is not verified or validated. Respondents participated in the study between June 2 and June 8, 2016. Detailed results can be found here.
** Fund operating expenses represent the total of all of a fund's annual fund operating expenses. Management fees are one component of the fund operating expenses. Index funds generally have low management fees because they don't have to pay investment managers to actively manage underlying investments.
The information contained herein is proprietary to Schwab Retirement Plan Services, Inc. (SRPS) and is for general informational purposes only. None of the information constitutes a recommendation by SRPS. The information is not intended to provide tax, legal, or personalized advice. SRPS does not guarantee the suitability or potential value of any particular investment or information source. Certain information provided herein may be subject to change.
Outcomes are not guaranteed.
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