What do you do if your employer eliminates your 401(k) match? Human resources consultant Hewitt Associates offers these tips for keeping you retirement savings on track even if your company stops pitching in.
1. Save more. The average employee can bridge the savings gap a company 401(k) match suspension creates by boosting his or her contribution by just 3 percentage points a year. If you can't afford that consider increasing contributions in smaller increments of 1 to 2 percentage points per year.
2. Diversify assets. Make sure you properly diversify your portfolio by regularly rebalancing your asset allocation. You can have this done for you by investing in target-date funds or managed accounts. Automatic rebalancing is offered by some plans. This feature regularly rebalances your accounts to restore the orginal targets you've set for large-cap stocks, small-cap stocks, bonds and cash. It will help you maintain a proper asset mix and help offset market fluctuations, maximizing savings.
3. Take advantage of advice. Many companies offer services and tools that can help you make informed investment choices. Many companies make one-on-one financial planning available and some offer at least online, third-party investment advisory services.
4. Don't cash out. Research shows nearly half of workers cash out their 401(k) plans when they leave a job. Although it seems tempting to cash out your retirement savings, you will forfeit 20 percent or more of the account value in federal taxes and you may be subject to 10 percent in early withdrawal penalties if you take the money out before age 59 1/2. By keeping money in the company's 401(k) plan even when switching a jobs or exiting the work force, you can continue to grow the savings in a tax-free environment and, in many cases, avoid higher investment fees typically associated with retirement savings accounts offered in the retail market.
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