It’s open enrollment time again, a time when employees across the country choose benefits options for the coming year, including those affecting their employer-sponsored retirement savings plan. Although most will just rubber stamp current plan settings, some of the savvier among us will take the opportunity to fully review plan options and ask important questions like these.
Are you contributing enough?
The more you contribute today, the more you’ll have for tomorrow. So consider upping your contribution rate — even if it is just a percentage or two. Contributing more is less painful than you may think. Since contributions are pretax, you save on taxes, so your net take home pay won’t shrink by as much as your contribution.
Most plans permit you to contribute a percentage of your salary either pretax or after tax (for Roth plans) to your plan. In 2013, Uncle Sam lets you contribute up to $17,500 to your plan, and if you’re age 50 or older, you can contribute an additional $5,500. In addition to your elective salary deferrals, your employer may contribute up to $28,000 to a traditional 401(k) in 2013.
You should also make sure you contribute enough to earn the full employer-matching contribution, if offered by your plan. This match amounts to “free” money that goes directly toward your retirement, and can make a huge difference over time.
Does your investment mix suit your goals?
If you’re like many people, you chose your plan’s investment mix when you first enrolled and probably have not changed it since. While this may be appropriate for some, it’s a good idea to review your investment mix at least once a year. Over time, the mix of investments in your portfolio — your asset allocation — can change due to one asset class outperforming or underperforming another. To make sure your asset allocation stays in sync with your risk level and goals, you may need to rebalance periodically. Similarly, you may need to adjust your allocation as a result of life events such as marriage or having a child. And as you near retirement, you’ll want to reduce risk in your portfolio by allocating a greater share toward income-producing investments.
Keep in mind that most plans permit you to specify a different investment mix for existing plan balances and future contributions. So, if you do need to change your investment mix but are reluctant to rock the boat, consider changing investments just on new contributions.
Are you on track to meet your savings targets?
If you haven’t already done so, it’s helpful to calculate how much money you’ll need at retirement. Online calculators are available at most financial and retirement planning websites that help you calculate how much you’ll need to save now and how much you will need to have accumulated by the time you retire in order to provide for the retirement lifestyle you desire. Once you know your number, you’ll be able to monitor on an ongoing basis how close you are to achieving your goals.
Remember that saving for retirement is not a set-it-and-forget-it deal. So take advantage of open enrollment time and put your retirement savings on track.
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