Updated: Nov 7
Recently I had breakfast with a friend. The conversation turned to 401ks. He told me that he had a 401k but didn’t know what to do with it or what to invest in. Everyone has heard saving for retirement is important, but the implementation can be daunting. Well, when in comes to a 401k think S-I-M-P-L-E.
S: Save for the future. Savings for the future is always good, especially when you are young. Saving in your 401k especially in your 20s can tremendously increase your chances of becoming a millionaire by the time you retire. Even if those 20s are a memory, now is the time. Shoot for 10% of your gross salary, but if expenses are tight at least get the company match.
I: Invest in something. Investing in something in your 401k is always better than not contributing because there are too many options and it's overwhelming. Which option should you place your money? It doesn’t have to be the best fund, it doesn’t even have to be a good fund, but investing in something over the long run is a better strategy for growth than investing in nothing. A good rule of thumb is if you’re not sure what to invest in choose a Target Date Fund. Here is how to do it. Decide what year you want to retire. Find the closest year in your 401k choices and invest. Target Date Funds are a great way to invest in many different parts of the market in one fund.
M: Make the most out of your raises & bonuses. Having some of your paycheck go into your 401k is great, but those raises and bonuses can supercharge your retirement savings. If you’re getting raises and bonuses you’re probably rocking and rolling at your job. Pat yourself on your back and reward yourself! Get that new TV or go on that trip you’ve been planning. But use some of your bonus or raise for your retirement. Aim to place at least 10% of each raise or bonus into your 401k. I guarantee the 67-year-old self will thank you.
P: Pause. Pause and think about the future you want. Life happens fast. Before you know it, retirement will be just around the corner. What kind of future do you want? What do you want to be doing in retirement? Do you want to be traveling and seeing the world? Staying local? Whatever it is, think about it, because if we don’t take control of life, life can easily take control of ours. Now that you have that vision. Think about saving in your 401k to help make your dream become reality.
L: Let go. Let go of checking your 401k everyday or week. Remember, having a 401k means you’re in it for the long haul. Think of a 401k as a puzzle, if you stare at one piece of a puzzle, the whole picture isn’t there. Once you get sight of the whole puzzle a beautiful picture emerges. Checking your 401k each day or week does not show the complete picture, but the whims of the market. Checking your 401k every 6 months or year will give you a better picture of how you’re progressing to that complete picture of retirement.
E: Expect great things. It easy to focus on the amount of money that is going out of your paycheck. Focus on the positive instead. Know that through savings and investing week over week, year after year, decade after decade, great things will emerge in your nest egg.
Remember the S-I-M-P-L-E process and you’ll be on your way to making a great financial future. It’s never too early or late to start investing in your 401k.