Andrew Nelson

Retirement Plan Resolutions

It’s estimated that less than 10% of resolutions work. Oftentimes this is because people want to change habits that aren’t specific enough. As you can imagine, common New Year’s Resolutions are to lose weight, exercise more, save more money, read more books, etc. These goals are lofty and typically aren’t specific enough. Like many of you, I’ve started and stopped many of the resolutions listed above. Through reading and experience, studies show that setting small incremental goals lead to a much higher probability of changing habits as opposed to setting larger less quantifiable goals (i.e. taking the stairs every day and having a smoothie for breakfast as opposed to trying to lose 20 lbs.). While some of us at Human Investing might fancy ourselves as trainers, chefs, and motivational speakers, the truth is when it comes to dispensing advice our “lane to stay in” relates to finance, budgeting and planning.

So, with the understanding that saving more for our future is important and retirement accounts like 401(k)s are a great way to save towards our future here are 3 simple and quick ways to enhance your goal of saving more:

Change your Pre-Tax 401(k) to a ROTH 401k Contribution

If your 401(k) has a ROTH contribution type option (over half of all plans do today) changing your contribution type to a ROTH will automatically have you saving more money. For example, someone making $50k and saving 5% is contributing $96 per pay period (assuming bi-weekly payroll). By saving via the pre-tax type, that $96 feels like $75ish (depending on tax variables) but you have to pay taxes on it later. By switching to ROTH you pay the taxes now, but you are physically contributing more money (the full $96) to grow over time. There are other variables that can go into the pre-tax vs. ROTH discussion, but note that if you are saving the same percentage ROTH will always win because you’re saving more.

Automation can either be a huge win (think about direct deposit from your paycheck) or an epic failure (think about when predictive text messages create awkward moments between you and your parents). One way to implement automation in the retirement plan space is to implement auto increase. This feature allows you building your savings in a timely manner and creates the ability for to set up future savings in a customized and structured way.

Target Retirement funds, while not universally the best investment allocation for everyone, create an easy and efficient way to allocate your account that aligns with your age. By doing this, you don’t have to be worrying about checking in on your allocation and consistently making changes. It allows you to focus on your savings rate and letting the Target Date fund take care of investing appropriately.

If 2017 is the year you want to dive into your 401(k) we want to dive in with you! Feel free to email or call our office any time and we would happy to walk through any questions you have.