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6 ways to get the most from your 401(k) retirement savings account

by Jim Sloan

Although investment advice firm Charles Schwab reports that 401(k) plans have replaced workplace pensions as most Americans' largest source of retirement savings, most workers aren't giving their 401(k) investments the attention these savings accounts are owed.

For one thing, almost a third of American workers with access to 401(k) savings accounts through their employer don't take advantage of them. And those who are saving aren't taking advantage of the type of professional advice that has helped others not only increase their savings but to weather stormy stock market periods.

With all that in mind, here are six key ways to get the most out of your 401(k) retirement accounts:

  1. Keep track of your old 401(k) accounts. With more workers changing jobs and careers these days than in the past, when many Americans worked for the same company their entire professional lives, it's easy for you to find yourself with more than one retirement savings account. So consider moving an old account into your new employer's 401(k) plan, or rolling it over into an Individual Retirement Account (IRA). The last thing you want to do is cash it in; you not only lose future income on the investment, but you also will have to pay taxes and penalties if you're younger than retirement age.
  2. Invest in retirement in accounts outside of your 401(k). This diversified approach increases your choices from the often-limited investment options allowed under most 401(k) plans. It's easy to shop around for the best CD rates, and if a certificate of deposit doesn't interest you--the highest CD rates are currently at a low level--then consider online savings or some other high interest savings account.
  3. Be proactive about signing up for your company's 401(k) program. Although nearly 40 percent of employers automatically enroll their workers in their 401(k) plans, most still require that you take steps to set up an account.
  4. Maximize the match. Although company matching policies are sometimes confusing, find out what the maximum amount is that your company will match and contribute at least that amount. The match is free money, so take it. This may seem like obvious advice, but according to Smartmoney.com, three out of 10 workers eligible for a company 401(k) plan don't participate.
  5. Diversify your investments within your 401(k). We've all learned in recent years just how volatile the stock market is. Although the average annual return of stocks in the long term is roughly 7 percent, there can be wild fluctuations in between. So make sure some of your investments are held in less risky assets, such as bonds.
  6. Get some professional advice. According to a 2010 Charles Schwab study, the number of employers who make 401(k) advice available to plan participants has increased from 42 percent in 2005 to 74 percent in 2010. According to Schwab, 70 percent of those who receive 401(k) advice double their savings rate; double the number of asset classes they invest in; and show more discipline when it comes to riding out market fluctuations and remaining in a market when it rebounds. The problem is that although most people say they would use free personal advice if it were offered to them, less than 10 percent actually do. Some are getting advice outside the workplace but others say they are too busy with other financial challenges or haven't saved enough to warrant an appointment with a financial adviser.


Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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