With the start of the 1980s brought about the inception of the 401(k) retirement plan. Like any other retirement plan, it requires someone who is familiar with 401(k) plan management.
First, let’s begin by explaining what actually is involved in the setting up of a 401(k) plan. This type of retirement plan is employer sponsored, and permits the employee to contribute their pre-taxed dollars into an investment plan that is set up for their retirement. For those without knowledge of investing, they may want to seek the advice of a professional financial investment advisor about how to best invest their 401(k) dollars.
When you have a 401(k) retirement plan, the good and bad news is “you have more control over your money.” Here are some rules that apply for 401(k) plan management.
Your 401(k) plan dollars can represent up to 80% of your total retirement income. With a 401(k) retirement plan, your employer, as well as the government, is allowing you the opportunity to save money on a pre-tax, tax- deferred basis, which allows your money the chance for compounded growth.
If you work for a company with a 401(k) plan being offered, you need to ensure that you start participating in this plan as soon as possible with as much as you can afford as this is the primary step to taking charge of your financial future.
As an added incentive for their employees to save for retirement, often employers will offer to match their contribution up to 50% or a maximum of 6% of their total salary.
Now that you are investing in a 401(k) retirement plan, how do you go about managing it? It can get rather costly to hire someone to manage your 401(k) at anywhere from 0.15% to 0.7% annually. That may not seem like a lot of money at first, but you also need to consider the cost of expense ratios for an active fund accounts and now suddenly it is a lot more money. This extra cost could prove worth it, if there was the promise of boosted returns; however, with financial investments there are no real guarantees.
When you are planning for your retirement, you need to also remember that there may be pre-retirement goals in which you also need to save money for.
Another thing you must take into consideration is the duration of time before retirement. If it is more than ten years from now you need to try and have a lot more weight in stock, because you have more time to recover from any potential losses that may occur if the market should take a down turn.
One final note on 401(k) plan management is you must be absolutely sure that you are psychologically capable of handling any potential financial loss involved in market downfalls and that will you be able to handle the loss of money during the ups and downs that the stock market succumbs to from time to time. If you are sure you can handle this, then a 401(k) retirement plan just might be something for you to look into.