Your 401(k) plan is (probably) cleverly designed to help you save for retirement in a virtually painless manner. Since clarity and security can be very dull, here are five simple steps you can take to restore the thrill of the uncertainty to your retirement future.
Road to Ruin, Milestone 1: Opt Out
No greater blow has been struck against your future unhappiness than automatic enrollment into your 401(k). You cannot remain passive; to pave the road to ruin you would need to actively opt out of your plan. Or if some participation is mandatory, reduce your contribution to the bare minimum. But be careful; some plans automatically increase your contribution each year. Remain vigilant and reduce your contribution annually.
Road to Ruin, Milestone 2: Refuse Free Money
Sometimes undermining your future takes resolve. Your employer likely offers you free money, called a “matching contribution”, to encourage you to add more to your savings. Typically, the more you defer, the greater the match up to a maximum of 3, 4, even 5%. The lure of free money is powerful; the best approach may be to never find out how to maximize the match.
Road to Ruin, Milestone 3: Be Wildly Inappropriate
You don’t have to live by their rules. There are no guarantees in investing, but there are certain general guidelines meant to encourage success, such as taking on more risk when you are young and being more conservative as you near retirement. Ignoring them won’t ensure failure, of course, but they may add an exciting uncertainty to your retirement outcome.
Road to Ruin, Milestone 4: Retirement ATM
You may find, despite your best efforts, that you have accumulated a substantial savings. (Or at least one that looks substantial when compared to your checking account balance.) To overcome this obstacle, ask yourself, “What am I missing out on?” (See FOMO) Borrowing from your 401(k) like it’s an ATM to join the party can help you trade tomorrow for today.
Road to Ruin, Milestone 5: Keep Telling Yourself You Have Time
Perhaps the surest way to ruin your future is to throw away you best asset: time. If you have managed to not save for retirement, or have only accumulated a small “nest egg”, pat yourself on the back and remind yourself you have time. No sense starting now – not if you want to ruin your future.
Legal Note: Our compliance department notoriously lacks a sense of humor. They would like us to point out that the above is intended ironically. It is the exactly wrong advice. To be clear:
- Don’t opt out. Opt in.
- Don’t reduce your company match. Find out how to maximize it.
- Adjust your investment allocations as you age.
- Do not borrow or withdraw money from your 401(k) until you are retired.
- Start saving now.
Chip Castille, Managing Director, is head of BlackRock’s US & Canada Defined Contribution Group. You can find more of his posts here.