Latest posts by R.J. Weiss, CFP®
- Financial Milestones To Reach Before 35 - November 20, 2017
- 12 Money Hacks That Will Add $5K To Your Bank Account - November 9, 2017
- 6 Personal Finance Ratios You Need to Know - November 6, 2017
Wish you could wave a magic wand and optimize your 401(k) to retire rich? These 7 surprisingly simple 401(k) tips come pretty close.
As a Certified Financial Planner™, I’ve come across my share of 401(k) mistakes. The good news — most of these mistakes are easy to overcome (even if you know very little about investing).
To help you with that, here’s 7 simple tips to optimize your 401(k).
How To Make Your 401K Grow Faster
# 1 – Let Your 401(k) Bloom
If you’re going to do one thing today — give your 401(k) a free analysis with Bloom.
The Wall Street Journal recently named Bloom “One of the best online tools for retirement planning.”
To get your free analysis, all you have to do is enter your name, birthday, and estimated retirement date. Then, let Bloom link up to your 401(k) to learn if you picked the best investments to optimize your returns and minimize risk.
Bloom Quick Summary
- Check the health of your 401(k) with a free analysis from Bloom
- Named "One of the best online tools for retirement planning" by Wall Street Journal
- Works with: 401(k), 457, 403(b), 401(a) and TSP
# 2 – Use A Retirement Calculator To Make Better Decisions Today
Where do you stand today relative to your retirement goals? Are you saving enough? How will inflation impact retirement? How will paying for college impact your retirement?
These are all very hard questions to answer. Until recently, the most common way to answer these questions were rules of thumb. For example, to retire save 25x your annual expenses.
If only there was a retirement planning calculator that takes your investments, income, and expenses today — to determine where you stand relative to your retirement goals. I’m happy to tell you such a calculator exists thanks to Personal Capital’s Retirement Planner and it’s completely free!
Why should you use Personal Capital’s Retirement Planner to help you retire rich?
- Real Data – Personal Capital’s Retirement Planner doesn’t assume. Instead, it uses real data from accounts you link to calculate how prepared you are for retirement.
- Customizable – How will college or a new home impact your retirement. What about an expected boost in income? Personal Capital allows you to see the impact of each of these events on your retirement goals.
- Discover Hidden Fees – They’re called hidden fees for a reason. Personal Capital has a tool called the Portfolio Fee Analyzer that uncovers the investment fees you’re paying across all your accounts.
I’ve invested A LOT of money in financial software over the years. Personal Capital’s Retirement Planner is better than many tools that cost over $1,000 a year. It’s the comprehensive free retirement calculator I’ve always wanted.
Personal Capital Quick Summary
- Free analytics tools to show you where you stand relative to your goals
- Named best financial app by MacWorld
- Sign up in seconds
# 3 – Increase Your Savings Rate In Increments
The most important decision of your financial life is how much of your paycheck you decide to save.
Fidelity Investments recently finished a large study1 of 401(k) millionaires. What they found was that the typical investor contributes 8% of their pay to their 401(k). The savings rate for the average 401(k) millionaire was 16%.
If you’re not at 16% today — there’ no need to panic. Getting there isn’t as hard as many think. Here’s one tip that has been powerful to myself and clients — increase your savings rate by 1% at a time.
For example, say you’re saving 0% of your paycheck today. Start today by saving 1%. In three months, increase another 1%. Since I’m a personal finance geek — I have a calendar alert which reminds me to increase my 401(k) 1% every six months.
By increasing your savings rate 1% at a time, you’ll barely notice the difference. Then, a few years go by and you’ll be on pace to become a 401(k) millionaire yourself.
# 4 – Take Advantage of the Match
A report by the independent investment advisory2 firm Financial Engines found 1 in 4 employees are not taking full advantage of their employer match. By not maximizing their match, employees are leaving an estimated $24 billion on the table.
Taking full advantage of your 401(k) match is as close to free money as you’ll ever get. If you’re not currently taking advantage of your match, make the changes you need to make to get there.
# 5 – Rollover 401(k)s The Easy Way
Why does it make sense to rollover your 401(k)? After all, switching can be quite the pain.
But as previously mentioned, 401(k) fees are quite high. The ICI reports3 that the average person pays 1.29% in fees to invest in their 401(k). For smaller businesses, the news is even worse. Plans with less than $2 million in assets averaged 2.22% in fees.
It’s not uncommon to have a few old 401(k)s lying around. By rolling over your 401(k), you can reduce your fees and have available a wider range of investments.
You’ll also be happy to know that a 401(k) rollover doesn’t have to be such a pain. While some investment brokerages make the process labor intensive, Betterment makes it simple. They actually have a process called “60-Second IRA Transfers”
For 50+ 401(k) providers transfers to Betterment can be completed in 60-seconds.
Once your funds are transferred, you’ll benefit from Betterment’s simple funds, low-cost funds designed to meet your goals.
Betterment Quick Summary
- Makes 401(k) rollovers easy with their "60 Second IRA Transfer" capability
- Uses automated, smart rebalancing to optimize your returns in a totally hands off way
- Fees start as low as .25% with a $0 minimum balance
# 6 – Pay Down Your Debts
Compound interest is powerful. Very powerful.
Over a working lifetime of 34 years, it would take only $300 a month at a 10% rate of return to become a millionaire. Looking at this example more closely — $300 a month, 12 times a year, for 34 years means you’re only investing $122,400 (300x12x34).
That $122,400 turns into a million thanks to the power of compound interest.
Not bad, right?
What many of us don’t realize though is that compound interest works both ways.
Say you have $5,000 of credit card debt at an 18% interest rate. As of now, you can only afford to make minimum payments of 4%. In this scenario, it would take you 11 years and one month to pay off your debt.
And since compound interest was working against you that entire 11+ years — your total payments would be $7,873.51.
If you want to retire rich, you must have compound interest on your side. That means getting out of high interest debt ASAP.
If you have high interest debt, such as credit card, car, or even some student loan debt, getting out of debt will require you to make a change. Most likely, you’re going to have to reduce your spending.
However, one under utilized and powerful strategy for getting out of debt fast is refinancing your debt to a lower interest rate. You can do this for both personal debt and student loans.
A good resource is SoFi, which provides rates as low as 2.815% for student loans and 5.49% for personal debt.
The average credit card interest rate is over 15%, so refinancing to a lower rate can save you a ton of money.
Those who refinance their student loans through SoFi, save an average of $22,359!
If you have outstanding debt, it’s worth your time to complete their application, which takes a few minutes.
# 7 – Maximize Your Credit Score
How can having a good credit score today help you retire rich?
To many’s surprise, a good credit score can save you over six figures. One study4 showed the difference of having excellent vs. poor credit saves a typical 35-year old male $274,918 over his life.
Why so much? There’s many advantages to having high credit, including:
- A lower mortgage rate
- Lower rates on other debt such as car or student loan debt
- Easier approval, and potentially lower rates, for rental houses and apartments
- Lower home and car insurance rates
- Lower cell phone plans
These benefits can carry over to retirement as well.
Fortunately, a lot of what determines your credit score is in your control. In other words, there are specific actions you can take to increase your score over time.
I use a free app called Credit Sesame — which provides me personalized recommendations and resources to maximize my score. I signed up online but they now have an simple app for both iPhone and Android (has a 4.3 rating and over 21,000 reviews on Google Play).
In as little as 2 minutes, you’ll get powerful, personalized recommendations to improve your score
Signing up is free and no credit card is required.
- Surge in 401(k) millionaires as balances hit highs
- Americans Likely Leaving $24 Billion in Unclaimed 401(k) Company Matching Contributions on the Table Annually, Financial Engines Finds
- Study Finds Small Business 401(k) Fees Average 2.22%
- Most People Will Ultimately Pay About $279,000 Of Interest On Their Loans