Did you ever realize that over the entire country, a quarter of all households have just $1000 in what they own, apart from their house? And half the country lives with no savings over $25,000 – other than their main house, Lots of those people are looking at looming retirements coming up too. It’s the most maddening thing about preparing for retirement – it is unbelievably easy to take all the right steps and to secure yourself against a miserable old age. And yet it never seems to be possible to actually get around to doing it. When it comes to doing the sensible thing in personal finance, it’s never about how you have a lucky day and come by a lot of money; it’s all about how your luckiest day is the day you decide to face your biggest challenge – turning responsible. But should this be that day and you should decide to bite the bullet and do what is best for your 401k investment plan and secure your future, here’s what you do.
The first rule of surviving your entire retirement intact is to start contributing to your 401(k) at work today. If you have one now, you could actually count yourself lucky – lots of struggling employers have actually suspended their 401(k) programs. There is this new online tool that the Bank of America has recently launched that you could use to check how healthy your 401k investment plan actually is. The tool takes a look at how the participants in the program save, how they invest, when the participants plan to retire, and how how well the plan protects participants’ nest eggs like they were sacred. According to the tool, if at your place of work, only less than seven out of ten employees actually participate, then that 401(k) investment plan is headed for disaster. The really good ones have eight or nine out of every 10 employees actively participating.
An evaluation by a retirement advisor might be a good idea. He typically looks at your financial life, and scores you on a scale of 1 to 10 for how safe or risky your plan seems – to look at the pieces are all arranged. The retirement advisor will typically score you on certain behavior patterns. If you’ve never asked your employer for an investment strategy, if you don’t make full use of what your employer would match in 401(k) contributions, if you don’t save at least 2% of your income every year, if they catch you concentrating your 401k investment plan on certain specific kinds of assets or all on stock in the very company you work for, they call you a sucker for risky retirement behavior.
Lots of people don’t really actively manage their 401(k) investment plans. If a person starts out contributing 7%, it’s likely that he will let that arrangement run to the end of his working life. That’s not the way it’s supposed to be – as you keep working, you’re likely to earn more each year through raises and better jobs. That contribution rate needs to keep up with how much you make. In fact, you can actually apply with your employer to automatically raise your contribution rate anytime you start to make more money. Remember what was said in the last paragraph about concentrating too much with your 401(k) investment portfolio in shares of the very company work for? That counts as putting all your eggs in one basket. Should your employer fail as a business, not only will you lose your job, you lose your nest egg too. It’s all about pulling back on the risky behavior when it comes to your retirement.