17 July 2019

Your New Retirement Mantra

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Small steps taken now, no matter your age, could make or break your financial future — including whether or not you will have a comfortable retirement. To make sure you’ll be able to retire how and when you want, start by reviewing your 401(k) plan. The task may seem daunting given the number of considerations, such as investment allocations, deferrals, and risk preference, but we’ll make the process easier by focusing on these three areas:

1. Save 

As a 401(k) investor, one of the few things you control is how much you save. It is important to save/defer as much as you can, as soon as you can.

For 2015, the deferral limits set by the Internal Revenue Service for all defined contribution plans (401(k), 457, 403(b), and the Federal Thrift Plan) is $18,000, with a $6,000 "catch up" contribution for those over 50. According to The Vanguard Group's, "How America Saves 2014," the 2013 average deferral rate was 7% and the average annual contribution was $8,327, across its participants — which means that for most Americans, there’s still a lot of blue sky to maneuver before hitting the IRS limits.

2. Invest 

The other area that you control is how and what you invest in.

Your employers' defined contribution plan will have an investment lineup of 13 investment options on average. They may range from asset-mixed funds like target-date funds, lifestyle funds or balanced funds, which are automatically diversified and rebalanced, to stock funds, bond funds, money-market funds and stable value funds. The latter funds permit you to build your own portfolio.

3. Preserve 

Baby boomers in or near retirement don't have much time to rebuild wealth if markets decline, and should preserve the nest egg they worked hard to build. Two low-risk investment options available in 401(k) plans are stable value funds and money-market funds.

Stable value funds are only available in employer-sponsored defined contribution plans, and therefore, they don't have the same recognition as money-market funds. Like money-market funds, stable value is a low risk, conservative investment.

Money-market funds are low risk mutual funds that invest in short-term debt securities. As of the third quarter 2014, stable value funds earned on average 1.98%, which is almost 200 times higher than money-market fund returns of 0.11 % and typically, stable value funds have exceeded most money-market funds from 50 to 200 basis points.

Seize the moment and get on course for retirement. Evaluate your 401(k) plan and check these three items off your to-do list. You may have forgotten about all of your other resolutions, but don't ignore this one, because your future financial health and happiness depends on it.

Click here to access the full article on Market Watch.

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