As the Class of 2016 enters the workforce, they’ll likely be faced with decisions they’ll need to make about their 401(k) or other employer sponsored retirement plans. This is new territory that they probably didn’t learn about in school, so what should they do? Kyle Jones, Financial Planner at Wamhoff Financial Planning & Accounting Services, offers advice.
Tip #1: Get Enrolled
• Many employers today auto-enroll new employees in to their 401(k) plan. This is positive in that it’s increased the number of people who are saving for the future.
• Even if your company does not provide auto-enrollment, you’ll want to enroll in the plan. Make sure you have all of the paperwork, and ask the company’s plan administrator to answer questions about the plan.
• Many employers offer a match. Try to invest at least as much as the company match.
• Enroll early! Those who take advantage of investing when they start their first job out of college have the advantage of time on their side. If you start at age 25, for example, and plan to retire at 65, you have 40 years for your money to grow with compounding interest.
• Money you invest into your 401(k) or other eligible employer sponsored plan is pre-tax which reduces the income you have to pay taxes on.
Tip #2: Get Advice
• Turn to a professional financial planner, or a trusted family member, to help you determine your goals and risk tolerance in order to allocate the funds appropriately.
• If you cannot afford to seek the help of a professional, or do not have a trusted source to turn to, there are a couple of options that may be appropriate for you:
• Target Date Fund – many plans feature target date funds in which your risk is calculated and adjusted over time based on your age.
• Risk Tolerance Calculator – there are many online calculators that will walk you through a series of questions to help you determine your risk tolerance and how that risk tolerance translates to your funds and allocations.
Tip #3: Ongoing Review
• We recommend reviewing your statements on a quarterly basis.
• During this review, you should look for things like:
• Are my contributions going in?
• Are my allocations still appropriate?
• Is my risk tolerance still appropriate?