How much should you contribute to your 401k or 403b?
Filling out paperwork with Human Resources department at your work can be excruciating. However, as tedious as it can be, be sure not to overlook the retirement plan documents.
There are three 401k or 403b questions to consider when doing this:
1. How much does your company match? - If the company matches a percentage of your contributions, contribute at least as much as they match. For example, if they will match 3% of your salary, contribute at least 3% of your pay check. Your company’s match is ‘free’ money that will help bolster your savings.
2. What are my investment options? - Not all retirement plans are created equal. For example, the University of Iowa’s TIAA-CREF plan is one of the best in the nation with many great investment vehicles to choose from. However, they are the exception, not the rule. As you decide what to contribute ask yourself, ‘Would I be better off contributing just the match and then saving extra in an IRA that would have more investment options?' IRA money can be invested in mutual funds across all asset classes, most of which will not be in your 401k plan.
3. What do I need to save in order to retire? - This isn’t a simple answer. There are many factors that determine when an individual should retire and how much income they can expect during retirement. Given the complexity, meet with the advisor who works with your company or talk with an outside advisor with independent advise.
That’s why we’re here. We help tackle these questions and help make the correct financial decisions so that our clients reach retirement effectively and efficiently.