Saving for the future can help ensure you have enough money to live the life you want later on. Beginning to save as early as possibly can help you do that—that’s why signing up for your workplace retirement plan is important. Some employers may sign up new employees automatically at a relatively low contribution rate. If your employer offers matching contributions, be sure to contribute at least enough to get the full benefit so you’re not leaving money on the table. In general, saving at least 15% of your pre-tax income for retirement is a good idea, including the matching contributions from your employer.
Investing your retirement plan (401(k), 403(b), etc.)
The most common types of retirement plans offered by employers are 401(k)s and 403(b)s. Saving in these types of plans can be important but investing your money for potential growth matters too.
Luckily, you don’t have to be an expert to invest your retirement savings. Your employer may offer products in the plan that can help with some of the investment decisions. Those looking for simplicity may choose a single fund option that typically includes 2 types of asset allocation funds: target date funds, based on an expected retirement date, and target allocation funds, based on a risk tolerance and time horizon.
- Target date funds are managed with a focus on a specific retirement year. If you’re planning to retire in 30 or 35 years from 2023, for example, you could pick a fund with a target retirement date of 2055 or 2060. The target date fund that is aiming for the year closest to your expected retirement year will invest in a mix of investments appropriate for that time frame. As the targeted date nears, arrives and passes, the mix becomes more conservative—usually by dialing back the level of stock investments and increasing investments in bonds.
- Asset allocation funds provide a diversified portfolio of investments across the various asset classes (stocks, bonds, and short-term investments) that lines up with a set risk tolerance.
Investors or savers who want more personalized attention, or who are navigating a complex financial situation, may benefit from a managed account service.
Managed accounts offer professional management of a mix of investments built around information about you. A team of investment professionals can create and manage your portfolio, giving you a more personalized investment strategy that's based on your situation. It can consider your workplace savings, comfort with the ups and downs of the markets, financial goals, investment horizon, and other sources of retirement savings for you or you and your planning partner—such as IRAs, pensions, or stock plans. A fee is usually included for the service plus the cost of the underlying investments.
Of course, you can also choose your own investment mix from the menu of options your employer provides. It just takes a little more time and attention to build your mix of investments and manage them over the years.