To help employees save for retirement, employers offer a 401(k) plan through which employees can make tax-deferred contributions toward their retirement savings. However, too many employees just don't take full advantage of their 401(k) plan, and those who do must be sure not to sabotage their retirement planning by tapping into it to meet random cash-flow needs, according to financial advisors Lazetta Rainey Braxton and Shannon Eusey.
Understanding and maintaining your 401(k) plan is key to becoming retirement-ready. Keeping an eye on your investments, making sure to capture matching contributions and rebalancing regularly are a few key steps toward saving for retirement, said Eusey, who urges investors to avoid making costly mistakes with their 401(k) plans. Eusey is founder of Beacon Pointe Advisors.
"As we look at 401(k) investing, the three common themes we see, what we have actually call 'clients missing out' are missing out by not contributing enough to their 401(k), missing out by contributing too much too fast, and missing out on future growth opportunities," she said.
The power of compounding is important, but to take full advantage, people need to start saving right away, explains Braxton, the founder and CEO of Financial Fountains.
She urges employees to check with their company's human resources department to find out if their employer offers matching 401(k) contributions. If so, make sure you're contributing enough to take full advantage of the match. If you don't, you're giving up free money, explained Eusey and Braxton.
"Typically, the way the match works is if you contribute a certain percentage, the employer will match that amount, so if anything, don't leave any money on the table," Braxton said. "Work with your benefits officer to figure out what your employer match is, and make sure, at minimum, you are contributing enough to get the full employer match."
A 401(k) plan is one of the best benefits your employer can give you, Eusey said.
"Take advantage of the opportunity," she said. "Make sure you're contributing at maximum levels that you can, and make sure you're not being complacent about your investments.
"And if you need advice, please talk to an advisor," Eusey added. "They can help you navigate the way through your 401(k) plan."