What should you do if you've been automatically enrolled in your company's retirement plan? If you work for a company that provides automatic enrollment, you will be a participant in the plan once you meet the eligibility requirements. Your employer will begin to contribute a certain percentage of your paycheck into the investment option the company has chosen as its default.
Don't make the common mistake of thinking you have to stay with this default investment that your employer has chosen. Once you are enrolled, you can change the amount of your contribution, move money from one investment to another, or even opt out of the plan completely.
Your employer is required to send you information about the plan and its investment options, as well as instructions on how to make changes. Read these documents and ask questions if you don't understand something.
Like many people, you may be tempted to continue with the contribution rate (such as 3 percent of your pay) that your employer chooses for you. This may be less than you need to contribute to fund your retirement goal. Another question is whether the company offers a matching contribution. Try to contribute at least enough from your paycheck to obtain the full match from your employer.
Commonly, the default investment is a money market or stable value investment. This type of conservative investment may not be the best option for you. When you select an investment for your retirement account, consider how much you need to save for retirement, how many years you have left to work, and your tolerance for risk. Select investments that are aligned with your goals.
Review your investment options at least once a year to make sure you stay on track, considering any changes in your circumstances. Consider your overall plan, including where your retirement money will come from - Social Security, pension, and/or 401(k) plan. Also consider your desired retirement lifestyle, such as travel, housing, and medical care. It may be smart to consult a financial advisor for assistance in calculating the amount of money you may need in the future.
Finally, know the options for handling your account when you leave your employer. It may be possible to leave the account with your former employer, move it to a new employer's plan, or transfer it to a self-directed retirement account. Consider the impact of any taxes and penalties before making a move. It is important to keep your investments growing tax-deferred as long as possible.
Don't make the common mistake of thinking you have to stay with this default investment that your employer has chosen. Once you are enrolled, you can change the amount of your contribution, move money from one investment to another, or even opt out of the plan completely.
Your employer is required to send you information about the plan and its investment options, as well as instructions on how to make changes. Read these documents and ask questions if you don't understand something.
Like many people, you may be tempted to continue with the contribution rate (such as 3 percent of your pay) that your employer chooses for you. This may be less than you need to contribute to fund your retirement goal. Another question is whether the company offers a matching contribution. Try to contribute at least enough from your paycheck to obtain the full match from your employer.
Commonly, the default investment is a money market or stable value investment. This type of conservative investment may not be the best option for you. When you select an investment for your retirement account, consider how much you need to save for retirement, how many years you have left to work, and your tolerance for risk. Select investments that are aligned with your goals.
Review your investment options at least once a year to make sure you stay on track, considering any changes in your circumstances. Consider your overall plan, including where your retirement money will come from - Social Security, pension, and/or 401(k) plan. Also consider your desired retirement lifestyle, such as travel, housing, and medical care. It may be smart to consult a financial advisor for assistance in calculating the amount of money you may need in the future.
Finally, know the options for handling your account when you leave your employer. It may be possible to leave the account with your former employer, move it to a new employer's plan, or transfer it to a self-directed retirement account. Consider the impact of any taxes and penalties before making a move. It is important to keep your investments growing tax-deferred as long as possible.
Dianne Webster, CFP is a registered investment adviser in Amesbury, MA. She offers securities through Commonwealth Financial Network, Member FINRA, SIPC. Questions to be considered for future personal finance articles may be sent via e-mail to dwebster@ifslegacy.com.
