One of the absolute best ways to put away lots of money for retirement is with a 401(k). The biggest problem however is that many consumers simply don’t know the best ways to get the most out of them, and use them to generate the most retirement income. Today’s blog will look at the Top 3 ways to do just that. Enjoy!
1) Invest heavily in Mutual Fund
Most consumers realize that the better return they get on their money, the quicker their 401(k) will grow. In order to do that however you need an investment that delivers the highest rate of return and, according to a survey conducted of Fidelity 401(k) by Fidelity of 401(k) millionaires, 75% of the savings in their 401(k) was in mutual funds. Fidelity found that, on average, this led to a return of 4.8% (during the 12 years that the survey focused on).
Of course investing a lot of money into stocks is a little bit risky and isn’t the best for every consumer or every situation, but a 401(k) that’s nicely diversified will, on average, provide you with a proven track record and more retirement funds.
2) Take advantage of the Fund Matching given by your company
This is where a lot of consumers make a mistake. If your company will match the amount that you put into your 401(k) (and many do up to a certain amount) you need to do everything possible to put in the most you can and get those matching funds. It seems simple but many people who have a matching program at their place of work don’t do this, leaving hundreds of thousands of dollars on the table throughout their career. If your company will match, dollar for dollar, the amount of money you put into your 401(k), taking advantage of all that free money should definitely be one of your financial priorities.
3) Never Cash Out your 401(k) Early
A lot of consumers make the mistake of cashing out their 401(k) when they change jobs, which frankly is a huge mistake. Not only will you have a huge tax liability when you do, as well as very high early withdrawal penalties, all the compound interest that you’ve got going for you and all of those years of growth will go right down the drain.
Your very best bet to take as much money into retirement as possible with your 401(k) is to switch it to your new employer’s plan or, if it’s the only choice, keep it with your previous employer. That’s the only way to let it grow into a much more substantial amount of money, let compound interest work it’s magic, and get a whole lot more money later than you would ever be able to withdraw right now