How to make the most of your retirement investments.
Saving for retirement can be an overwhelming task. There are a lot of ways to invest your money, and not surprisingly, given the complexity of it all, many people don’t know how certain investment options work. In fact, according to Deloitte’s Meeting the Retirement Challenge study, Americans don’t have a good understanding of target date mutual funds (60 percent), annuities (38 percent), and fixed income securities or bonds (44 percent).
You may decide you want to get support from a financial advisor, but it’s also important to start saving early, do your homework, and keep your eye on where your money is going and how it’s working for you. To get started, here are five simple ways to grow and nurture your nest egg:
- At the very minimum, contribute to your 401(k) the amount your employer will match: A great company perk for employees is when an employer will match your retirement contribution at a specific amount. For example, let’s say you make $50,000 a year and you invest 6 percent into a 401(k). The company perk is a 50 percent match, capped at 3 percent of your annual salary. You make a contribution of $3,000, and the company contributes $1,500. Read more on employer matching at Smart401k.com and contribution limits at IRS.gov . Also, U.S. News & World Report shares 10 strategies to max your 401(k) balance.
- Pick the right asset allocation strategy for your age level: Don’t take a blind eye to assessing the right plan for your life. With each contribution, you’re making an investment, so make sure it’s the best investment based on your age and your retirement goals. That means drafting a plan and knowing how much you need once you retire. Also, as your major life events occur, such as getting married or buying a home, reevaluate your plan and make adjustments to how much you contribute.
- Automatically increase your contributions whenever you get a raise: Got a raise this year? Instead of increasing your expendable income, invest in your retirement. While you may not be able to put your entire raise into long-term savings, you can still set aside a portion of it. Once you take into account any expected cost-of-living increases, deposit a percentage of your raise so you can grow your retirement income.
- Combine multiple accounts: Tracking the progress of several retirement accounts can be a hassle. You don’t want to overlook opportunities to grow your money because you lack a centralized place to get an overall perspective on your investments. One solution is to have all your accounts at one financial institution. That way, you can better manage your money, cut the hassle and save money on fees. Tools like mint.com , or, if you’re a BMO Harris account holder and use BMO Harris Online Banking®, BMO Harris Total Look® can help you keep track of your accounts (even if they’re not with us), income, and expenses. Here are seven more reasons to consolidate your accounts .
- Avoid federal taxes on 401(k) withdrawals: Penalties aren’t just for fouls in football — Uncle Sam has them too. If you roll over your retirement account incorrectly, the federal government may mistake it as a withdrawal, rather than a transfer. And that mistake can cost you a 20 percent withholding tax — plus a 10 percent early withdrawal tax — if you’re under age 59-and-a-half. For example, if you take out $5,000 from your 401(k) at age 30, you will only receive $3,500. The remaining $1,500 goes to the government. Read this U.S. News & World Report on how an early 401(k) withdrawal affects your retirement security.