By all means . . . participate! If your company offers a 401(k) plan and you are not participating, then you are missing out on the most basic way to have a nice nest egg when you get ready to retire. Moreover, once you begin to contribute, and you get used to missing the little bit of money the plan takes each pay check you’ll end up asking yourself, “Why didn’t I participate earlier?”
I currently work for one of the largest financial and investment companies in the world. I work directly with clients setting up their 401(k) plans, educating clients on investment options, and going over the rules of the plans with the client. I am licensed in the investment and securities industry on variable investments, open-end investments, primary offers in closed-end investments, and 401(k) retirement options. I talk with anywhere between 80 to 100 people every day, five days a week, working with these people directly on their 401(k) plans. Therefore, I can tell you first hand that most (and I do mean most) people have no clue as to how their 401(k) plan works, or how they can get the most out of their 401(k) plan. This fact is what has actually inspired me to create The Working Dollar blog.
Because of this, for the next few weeks I am beginning a very extensive and very detailed series on how to get the most from your 401(k) plans. To most regular everyday average employees, 401(k) plans cause them to become like a deer staring into headlights. I constantly hear “I have no idea how this things works?” “What do I invest in?” “I need serious help because I have no idea what I’m doing”, “This thing is too confusing, I’ll never learn how to make it work.”
Do not let the false impression that a 401(k) is complicated keep you from participating in the plan. In all fairness, 401(k) plans are not that complicated at all if you take a little bit of time to understand how they work. Very simply put, a 401(k) plans has five essential elements that if understood, every participant can easily know how to maximize their 401(k) plans. These five essential elements are:
- Company Match
- Distribution Options
- Investment Options
If you can get a grasp of the above five elements in your 401(k) plan then you can easily maximize your plan and make your money begin to work for you. To this end I will begin this series on getting the most out of your 401(k) plans. I will provide details for all the essential elements. Moreover, I’ll post subsequent articles about various other topics pertaining to your 401(k) plan such as, “If I leave my company, what should I do with my 401(k) pan,” “How can I change my investment options in my 401(k),” “What do I do with my 401(k) once I retire?” and much more.
Keep in mind that I will educate you, the reader, on your 401(k) plans. I am not telling you how you should invest, what you should invest in, or giving any advice on how you should actually work or treat your 401(k) plans; ultimately, all that is up to you. My goal here is to help you gain a better understanding of what a 401(k) plan is, and how it can be best utilized by understanding the basic principles of the 401(k) itself. To that end, I hope you enjoy this series.