Objective information about retirement, financial planning and investments


4 Steps to Make Your 401(k) Work as Hard as You Do


Whether you work as an employee or you are self-employed you work hard for your money. In spite of what was said on PBS Frontline The Retirement Gamble and elsewhere in the press, in my opinion 401(k) plans are one of the best retirement savings vehicles available. Here are 4 steps to make sure that your 401(k) plan is working hard for your retirement.

Get started 

This might seem basic, but you can’t benefit from your employer’s 401(k) plan unless you are participating. If you haven’t started deferring a portion of your salary into the plan this is great time to start. Look at your budget, determine how much you can afford to defer each pay period and get started. You may be able to do everything online, otherwise contact the plan administrator at your company.

Are you self-employed? There are a number of retirement plan options to consider. If you don’t have a retirement plan in place for yourself, do this today.  You work way too hard not to be putting something away for retirement.

Increase your contributions 

This is a great time to review the amount of your salary deferral and look to increase it if you are not already maxing out your contributions.  For 2022 the maximum contribution is $20,500 if you are under 50 and $27,000 if are 50 or over at any point during the year. For those 50 and over you can still make the full $6,500 catch-up contribution even if your contributions are otherwise limited to an amount below the maximum due to your plan failing its testing. This situation can occur for highly compensated employees and often occurs with smaller plans.

If you were enrolled into your employer’s plan under an automatic enrollment scenario the amount you are deferring is likely inadequate to meet your retirement needs, you need to revisit this and take affirmative step both in terms of the amount deferred and the investment options to which those salary deferrals are directed.

It’s often popular to urge 401(k) participants to contribute at least enough to receive the full amount of any company match. I agree that it makes sense to go for the full match, but the key words here are at least. The quality of each plan is different, but if your plan offers a solid investment menu and reasonable expenses, consider increasing your contributions beyond the minimum required to receive the full company match. Automatic salary deferrals are an easy, painless way to invest and simplicity in saving for your retirement should not be pooh-poohed.

Take charge of your investments, don’t just default 

Target Date Funds are offered by many 401(k) plans and are often the default option for those participants who do not make an investment election. While TDFs may be fine for younger participants, I’m not a huge fan for those of you within say 15-20 years of retirement. If you are in this situation, look at an allocation that is more tailored to your overall situation. At the very least if you are going to use the Target Date Fund option offered by your plan take a hard look at how the fund will invest your money, how this fits with investments you may have outside of the plan, and the fund’s expenses.

Plan for your retirement 

While contributing to your 401(k) plan is a great step, it is just that, a step. Your 401(k) is an important tool in planning for retirement, but the keyword is planning.  Many 401(k) plan providers offer retirement planning tools on their websites.  They may also offer advice in some format.  Consider taking advantage.

If you work with a financial advisor make sure that they consider your 401(k) and all investments when helping you plan for your retirement.  I find it amazing every time that I hear of some brokerage firm that forbids its registered reps from providing clients advice on investing their 401(k) account because the plan is not offered by their firm.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

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  1. All good steps. Unfortunately, a lot of people struggle with the first step due too often to a fear of the unknown or a belief that they can’t afford to contribute at the present time. I always implore them to find a way as they really cannot afford not to put their money to work – nor pass up free money if their employer offers matching – as soon as possible.

    Agreed with regards to 401(k)s being a savvy retirement vehicle. While the PBS documentary was undoubtedly tough on 401(k)s, my take away was not that there was a suggestion that people should not contribute; but that fees can severely negatively impact performance…and that is true not just of 401(k)s. Individuals would be well served to always be mindful of the fees associated with any service or investment vehicle.

    • Roger Wohlner says

      James thanks for your comment. 401(k) plans may have their issues but by and large they are a great way for folks to accumulate a decent retirement nest egg.

  2. We’ll be setting up a Solo 401(k) for my wife before the end of the year. It’s exciting to be able to contribute via a new avenue and it’s easy to set up for someone without any employees.

    I think your point about making sure your investments in the 401(k) fit with your other investments is a really good one. This is where I think it can be helpful to work with an hourly planner to develop a plan. Most people don’t need someone managing their money, but sorting through the various different accounts and forming a coherent strategy can be difficult. That’s where it can really be beneficial to pay for some help.

    • Roger Wohlner says

      Matt good move! The Solo 401(k) offers great flexibility both in terms of investment options (pretty much anything that is allowed in a 401(k)) and contributions. Depending upon your custodian you can also do a Roth version.

      I’d probably beg to differ about the level of need for investors to engage a professional to manage their investments, but my perspective on this is a bit different from yours. No more evidence is needed than reading the stories about folks who panicked at the bottom of the last downturn, sold, and missed the subsequent rally. As far the need to manage your 401(k) as part of an overall portfolio this is key and a common mistake that I see.

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