Suggestions for Managing Your Retirement Savings Options

If you are not already familiar with employer-sponsored retirement plans, you should be. These plans allow employees to save money in a tax-deferred account. Then when the employee accesses the plan upon retirement, they typically only pay regular income tax on the withdrawal. Furthermore, by putting pre-taxed money into the plan, employees get to reduce their taxable income.

The key, however, is to properly invest your money within the retirement savings plan. You do not simply drop money into an account and magically come away with interest that helps you save for retirement. There are options and those options need to be identified and sorted for an individual’s best retirement outcome.

How Many Options Do Employees Have When It Comes to Investments?

There are many options when it comes to an employee’s retirement savings plan. Employees can invest in stocks, put money in mutual funds, bonds, and other low-risk options. The key to determining the best options for each employee is looking at their individual retirement timelines and plans. A good number of options in the plan is 12-15 funds.

People who have more time before retiring may be able and willing to take a higher risk. However, those looking to retire sooner rather than later may wish to invest slightly more but take lower-risk options.

Are Stocks Always the Best Option?

For a short time, the market was fairly stable. As a result, stocks offered a high-risk, high-return option for retirement planning. Therefore, retirement planning specialists would often stress the importance of stocks to employees.

Times have changed a lot. The market is volatile. One minute it could be riding a high. The next minute, you could lose everything. The fluctuation is often more than many employees can handle.

This does not mean employees should stay away from stocks entirely. However, it does mean that employees should only keep a portion of their investments in stocks. Stocks can help raise your retirement funds to a new high. If employees put too much money into stocks, they may hit a low point at the wrong time, diminishing their funds and leaving them without enough money to retire when necessary.

Is Diversifying Your Retirement Savings Plan Best?

Employees should diversify their retirement savings plan. They have the right to move money between funds. Most employer sponsored retirement savings plans are diversified and offer Target Rate Funds or Risk-Based Funds (sometimes called Lifestyle Funds) along with a separate set of funds if you wanted to make a custom portfolio. However, some options will offer more stock investments and a lower percentage of an employee’s money will go into low-risk funds.

The trick is to determine where and how each employee wants to invest their money. Younger employees can start with a plan devised of more stock options and fewer low-interest options. Then, at some point, they can choose to move their funds into an account with fewer stock options and more money going to low-interest accounts.

No matter the amount of risk an employee chooses, they will have a lower risk by ensuring they diversify their investments.

What Is a Guaranteed Interest Contract?

A guaranteed interest contract offers a set rate of return for a specific period of time. It is often backed by an insurance company. The good news is that these contracts offer a safe option for investing. The bad news is that these contracts are only as strong and secure as the companies issuing them.

How Often Should Employees Review Their Plan’s Performance?

Employees should probably review their plans’ performance every six months. They have the right to change their fund options within their retirement savings plan at any time. Therefore, when the market changes, they should ask to review the plan and see how the change is affecting their investment.