If there’s one way to build up your retirement, it will definitely be form your employer’s 401(k) plan. There’s nothing that says that you can’t build wealth this way, but one of the biggest mistakes that newbie investors make is that they glorify the 401(k) a little too much. They assume that all they will need to is just pour in money and let it grow. While it’s true that you can essentially set it and forget it, Ronco style, the reality is that you always want to start thinking about the type of retirement you ultimately want to have. You need to be aware that nobody is going to think more about your best interests than you. It’s tempting to just assume that everyone’s going to have your best interest at heart, but this isn’t the case. If you don’t monitor your retirement account, you’re not going to be able to hit your goals at all.
The best thing that you can do is actually read those retirement documents that come with your account. Study them well. See how the funds actually get handled — your funds, in particular. What is their plan for growth and preservation of capital? What is their risk profile? How are the assets allocated? These are all questions that need to be handled before you really start putting away your hard earned money.
While employer matching is good, you always want to make sure that you understand the terms and conditions. For example, what happens to the money if you leave the company? Remember that no employer is ever going to give you something just for the sake of giving you something. There’s always a price that needs to be paid for that — and for the matching, it usually means a certain number of service years with the company. So before you get excited about employer match, you really need to make sure that you have the right information about it. If you are not planning to stay at the company for very long — and let’s face it, jobs are getting shorter and shorter these days — you might not actually get to enjoy that match.
You need to also think about rollover possibilities — if you were to lose your job, how do you move your savings from that account to another account without facing penalties. It can be a lot more complicated than it needs to be, so this is something that you want to tackle up front while you’re in the “era of good feelings” with a company.
Overall, it’s a lot to think about, and we totally understand that you might be a little confused. Take the process slowly, get help when you need it, and refuse to deal with confusion — you can overcome anything with time, patience, and information! Hang in there!