9 Ways to Help Your 401(k) to Grow Faster
You know the feeling. Your 401(k) account doesn't seem to be growing fast enough.
Sure, you've done the basics. You put in enough money to qualify for the full match that your company offers -- no wasting free money, right? -- but your retirement savings aren't responding the way you would like.
In fact, after market fluctuations, a peek at your portfolio balance might even make you sick to your stomach.
If this sounds familiar, here are some tips to help your retirement fund grow faster and better.
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When you're given a raise, raise your retirement contribution. " It's simple; when review time rolls around and you receive a raise, increase your employee-deferred contribution by 1 or 2 percent, depending on the increase in income," says Jeff Jones, certified financial planner for Longview Financial Advisors in Huntsville, Alabama.
"Ideally, you would increase your contribution to account for the entire raise," he says. "This significantly increases your savings potential while avoiding lifestyle creep when raises are simply absorbed into your spending budget." Try to automate it so you don't feel the pain.
Be aggressive with your investments when you're young. Stocks generally have higher returns, but carry more risk. "These days, interest rates are at historical lows and bonds are not as valuable, so look for a fixed-income allocation in accordance with your age but allocated differently than just bonds," says Ari Fischman, financial adviser with Eagle Strategies in Michigan.
"If you're 40 years old, you should have 60 percent in a diversified equity portfolio, perhaps with a large chunk in an (exchange-traded fund) that mirrors the Standard & Poor's 500 index, (and) 40 percent in fixed-income vehicles such as energy, real estate, short- and long-term bonds," Fischman says.
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Find index options. Fees can eat away 25 percent of your savings over decades, so try to reduce them by finding a few lower-cost index options in your employer plan, says Stephanie Genkin, a financial planner in New York. "If your employer plan offers only one or two index funds -- say, in an S&P 500 and an international large-cap fund -- consider investing your 401(k) contributions in those funds and then round out your asset allocation by investing in other asset classes, such as small-cap or emerging markets, in your IRA. There are many low-cost options to choose from in the open market."
When you leave your job, consider a 401(k) rollover. "Why pay administration fees or high expenses typically found in a 401(k) plan when there are a number of good low-cost providers such as Vanguard, Schwab and Betterment?" Genkin says.
Ask questions. When it comes to your retirement account, take control by asking yourself and your advisor some questions, says Thomas Ferrara, founder and partner at Future Value Associates, in Pound Ridge, New York.
"What if any matching formula is there by the company? What mutual funds are available? Are the funds well diversified? Are there target-date funds that can put me on autopilot for a future retirement date? What income will I need when I retire?" Ferrara says.
Investors should also determine their risk tolerance, the fees, borrowing rules and performance of the plans, and if they can easily talk to an advisor if they have questions down the road, he says.
Save at least 10 percent of your salary. This should be your retirement goal -- and if you're starting in your 40s, you might need to put in 20 percent, says Joe Ready, director of Wells Fargo Institutional Retirement and Trust based in Charlotte, North Carolina. "People in retirement generally need at least 80 percent of their pre-retirement income," says Ready, and will likely need that each year for 25 years.
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Have more than one account . Even if you're already contributing to your employer-sponsored plan, start a Roth IRA to build potentially tax-free savings in addition to your tax-deferred 401(k) plan, Ready says. "IRA contribution limits could mean you need to save extra in taxable accounts, like a brokerage account." If you're 50 and older, make the additional $6,000 you're allowed in additional catch-up contributions each year, he says.
Use your health savings account to save for retirement. Money in the accounts can be accessed at any time for health care expenses, and, after 65 for non-medical expenses, says Steve Auerbach, CEO of Alegeus Technlogies, a Massachusetts-based company that provides technology for companies that offer consumer health plans.
"Health savings accounts are a compelling long-term savings vehicle, which offer greater tax advantages than even a 401(k)," he says. "HSAs are triple-tax advantaged, meaning they are not taxed on contributions, not taxed on earnings and not taxed on withdrawals for qualified expenses."
Try not to tap your HSA until retirement. "To put it into specific dollars and cents, an employee enrolled in an HSA and with an annual salary of $60,000 can take home $2,025 or more each year by choosing to contribute the maximum account threshold," says Jody Dietel, chief compliance officer of the consumer directed benefits provider Wageworks in San Mateo, California.
The average couple retiring in 2015 is expected to spend $245,000 on health care expenses in retirement, according to Fidelity research.
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