In recent days, the stock markets of the United States have experienced a roller coaster of emotions, reaching a mixed days in which the indices positively impacted some of the investment funds, among which those of 401(k) retirements stand out.
401(k) plans benefit when Wall Street indexes experience significant increases, for several reasons of value within the financial landscape. First, rising indexes reflect widespread growth in the stock market, which drives the performance of investments within 401(k) retirement plans. These types of plans are usually composed of a wide variety of assets, such as stocks, bonds or mutual funds, which are affected by market performance.
Are 401(k) Retirement Plans Enough? What to Do to Improve Them
According to mutual fund giant Vanguard, the average balance of people 65 and older who have 401(k) retirement plans is $279,997 through 2023, which would be insufficient if they have to retire today. It is a considerable sum, yes, but many would like to have much more. However, since most of them will also receive Social Security retirement benefits, this saving is significant.
To exceed this average, especially if you are at the beginning of your working career, you must take four key actions that will help you improve your 401(k) plan: increase retirement plan contributions, diversify investments, minimize debts and seek financial advice. Let’s explain all of them.
Starting saving for your retirement plan should happen as soon as possible, even if you don’t feel ready. It can be difficult with expenses like student loans or low starting salaries, but hey, you should make a small effort to form the habit of saving for your 401(k) fund.
Every dollar invested there grows significantly over time due to compound interest. For example, investing $1,000 in an S&P 500 index fund could be worth about $2,600 in 10 years, $6,700 in 20 years, and $17,500 in 30 years, imagining that you manage to get a 10% annual return.
This growth accelerates further in the long run, with $1,000 becoming around $45,000 in 40 years. It is better to start now, even with small amounts, as time plays a crucial role in building a strong retirement fund.
Make the Most of Matching Contributions From Your Employer
A lot of employers in the United States offer matching contributions to increase the speed with which your 401(k) account grows. This means that the company will match part of your savings in the plan with its own contribution, often up to a certain percentage of your annual salary.
You can infer with this that your retirement plan will grow faster and, when you reach your retirement age, you will have many more funds to be able to enjoy a full life in your old age.
Do you also remember that we are talking about diversifying investments? Instead of putting all your eggs in the same basket, diversify into various assets like stocks, bonds, real estate and index funds. This helps to mitigate the risk that you will be left without the entirety of your income or savings in the event of a loss, and will maximize the profit in the long run.
Finally, the most important tip, I think: hurry up to reduce and minimize debts before you retire, so that you can put more money into your retirement savings and also save yourself a lot of additional interest. This includes paying off student loans, mortgages and credit cards as soon as possible and not getting into debt, as long as you can avoid it.
