A 401K or pension plan is a way to contribute to a pool of funds that is invested for your future. We all must be prepared for our lives after retirement. Learning more about and proactively supporting your retirement plan will help you retire happily and maintain a quality lifestyle in retirement according to Tomas Vargas Harvard.
Different retirement plans work by saving sums of cash over your working years so that you have a lump sum or steady cash flows accessible at retirement age. The best plans offer guaranteed income for the rest of your life.
Even if you have already started contributing to your retirement plan, there are still some additional things you can do now in order to help your retirement plan including the following:
1. Find out your retirement plan value:
Your 401K or pension administrator sends annual statements that show how much you have in your retirement plan. The yearly statements also show your plan’s investment performance over the last year. They should include breakdowns for every asset class.
Further, most retirement plans will include a prediction of how much your 401K or pension fund will be worth when you reach retirement age. If your statements do not show this, you should call your plan administrator and ask for the estimate over the phone or on future statements.
2. Change your contribution or asset allocation
It is almost always beneficial to contribute more if possible. Here are some reasons why:
- Your projected monthly retirement income increases.
- The number of payments you should expect to receive in retirement increases.
You may also be able to change your exposure to different asset classes so that you increase or decrease the amount of risk you are taking to correspondingly increase or decrease expected investment returns. This will depend on how close you are to retirement age and how important it is to safeguard your plan versus increasing expected returns in the long run at the risk of short-term fluctuations.
Your plan will typically expect you to withdraw a stable amount each month as a percentage of the plan value says Tomas Vargas Harvard.
3. Withdraw from your retirement plan:
You can typically start withdrawing from your 401K or pension between the ages of 59-1/2 and 65. However, some pensions allow payments as early as 50 or 55. Before the earliest allowable age, you are potentially exposed to additional fees and taxes. Accordingly, it is advisable to talk to a financial planner, investment manager, CPA, or lawyer before doing this.
4. Strategically begin withdrawals at or after the minimum retirement age:
You can continue working a different job after you start withdrawing from your plan. You can also defer payments to a later date, which increases your projected monthly income from your plan once you start withdrawals.
5. What happens to your retirement in the case of death:
When you set up your 401K or pension, you must designate a beneficiary to receive your plan’s assets in the event of your death. You can designate multiple beneficiaries and change the beneficiaries over time.
This input from Tomas Vargas Harvard will help you manage your 401K or pension plan. Tomas Vargas is an investment management professional. He has managed multi billion-dollar equity and fixed income investment portfolios.