Have You Checked Your 401(k) Balance Lately?

Your retirement savings might need a tune-up. Dreamstime/TCA

By Adam Shell From Kiplinger’s Personal Finance

Keeping track of your 401(k) balance isn’t just about eyeballing the lump sum you’ve socked away in your retirement savings account. What you’ve saved is a key measuring stick to help you figure out whether you’re on track to reach your savings goal and cover your expenses once you stop working.

Lisa Featherngill, with Comerica Wealth Management, spells out the importance of keeping regular tabs on your 401(k) by sharing a quote from Yogi Berra: “If you don’t know where you are going, you’ll end up someplace else.”

It’s important to review your 401(k) balance regularly, as it likely represents a significant portion of your retirement savings. Knowing your balance today, however, doesn’t tell you much on its own about retirement readiness.

“First, you need to know your retirement number—or how much you need in retirement,” says Featherngill. Everybody’s magic number is different.

Once you have a savings target, check if your current balance and future return projections stack up against your goals, says Eli Taylor, with U.S. Bank Private Wealth Management.

Taylor recommends using one of the free online retirement calculators, which project future account balances using annual investment return estimates and years until retirement, to get an idea if your savings are on pace or if you need to adjust. “It’s also important to make sure you are contributing enough to get the full employer match if your company offers one,” Taylor says.

Here’s what else to include in your 401(k) tune-up.

Calculate How Much You Can Save

The more you contribute to your 401(k) each paycheck, the better. But you want to make sure your retirement savings plan contributions don’t cause a cash flow crunch.

That said, check to see that you are at least saving enough in your 401(k) to take advantage of your employer’s matching contribution, says Doug Roller, with Crossroads Financial Group. “It is essentially free money added to your retirement savings account,” he says.

You should shoot to save 15 percent of your salary (including your company match), personal finance experts say. Once you hit 50, you are eligible to make “catch-up” 401(k) contributions. For 2024, the catch-up contribution is an extra $7,500 on top of the $23,000 limit for everyone else.

Analyze the Performance of Your Fund Holdings

Ideally, you’ll want to own funds that keep pace with a market benchmark like the S&P 500 or funds that invest in similar types of investments. Make sure your funds are not lagging the market or the competition.

“Most investment companies post the returns of the funds in retirement plans as well as appropriate benchmarks on their website,” says Featherngill.

Try not to focus on short-term performance, as it offers too limited a snapshot of a fund’s performance. Instead, “try to focus on longer-term performance—at least three years—in determining whether the fund is keeping up,” says Featherngill. “If it’s not, see what other options are available.”

Review Your Asset Allocation

Check to see how much of your portfolio is invested in stocks and bonds. Stocks offer the most growth potential, while the typical role of bonds is to generate income and provide diversification. You want a mix that matches your risk tolerance and time horizon until retirement.

©2024 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

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