Do You Know What’s Going on with Your 401(k)?
It’s Day 1 at your new job.
You’ve got your brand new “first day of work” outfit on (power heels and all), venti non-fat latte in hand, and your work bag slung across your shoulder. You’re a force to be reckoned with and couldn’t be more excited to take on a new adventure!
But first – the paperwork.
The worst part of starting a new job is filling out that dreaded stack of paperwork asking you to declare your tax withholdings, list your beneficiaries, and provide plenty of other personal information. The other thing you’re expected to decide on the spot? Whether or not you’ll participate in the company’s 401(k) and if so, how much of your salary you’re going to contribute, as well as how you’d like this to be invested.
That’s a lot to think about, we know. We’ve been there. It’s overwhelming, can be confusing, and is easy to gloss over.
So… when it comes to your 401(k) what should you focus on?
1. Sign Up!
First things first, make SURE you are signed up for the 401(k). Most people assume they’re automatically enrolled in the plan, but this is not always the case. If you are not sure if you are signed up or eligible, reach out to your HR or Benefits partner.
2. Understand Your Employer Match.
In most cases, your employer will match your contributions to your 401(k), up to a certain percentage (typically this is 3-5%). If you aren’t sure what or if your employer offers a match, just ask!
3. Your Contribution.
At the very least, make sure you contribute enough of your income to take advantage of your employer’s match. For example, if your employer will match up to 5%, then make sure you contribute at least 5% of your income. This way, you are not leaving any free money on the table.
*Note, set a reminder a year from now (and every year thereafter, for that matter) to adjust your contribution. Even just increasing your contribution by 1 percentage point each year will make a difference in the long run!
4. Your Investments.
Once you’ve decided to contribute to the 401(k), you’ll need to choose how this money is invested. A typical plan like this will provide you with several different options as to how to invest. A few things to know:
- More often than not, the firm managing the 401(k) for your company can provide free financial guidance to help you select your investments. If you don’t already have a financial advisor, feel free to access the free guidance provided to you so that you can set yourself up for success.
- Most financial advisors will also review your 401(k) allocations for you for free. If this is something you’re interested in, I’d be happy to help!
- If you choose to select your investments yourself, be mindful not to place all of your eggs in one basket. In other words, be sure to spread out your investments so that you’re not too immersed in any one type of asset class or type of stock (such as your company’s stock). Placing too much of your funds in any one type of class or stock provides very little diversification and won’t protect you much if that segment should, unfortunately, not perform.