That’s a mistake that can lead to losses over time.
3 tips for empty nesters looking to replenish their savings
If you’re an empty nester, make sure you complete these three tasks to turbocharge your 401(k).
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If you’re making consistent contributions to your employer’s 401(k) plan, you’re doing a great job for your retirement.
If you earn an average wage, Social Security only equates to about 40% of your pre-retirement salary. Most seniors will need much more money than that to cover all their expenses, so it’s important to build retirement savings on top of these benefits.
But while regularly funding your 401(k) is a step in the right direction, it’s not enough. You also need to make sure your 401(k) is functioning properly. That means avoiding this important mistake.
Don’t get caught up in the wrong investments
If you put money into your employer’s 401(k) without making any specific investment choices, there’s a good chance the money will end up in your target date fund. These funds simplify retirement investing by investing your money in riskier assets when you’re young and gradually moving to more stable assets as you approach retirement.
There are two problems with target date funds. First, while these funds are designed to adjust your risk profile based on age, they generally tend to err on the side of investing too conservatively overall. This could lower your yield and limit the amount you can save for retirement.
Target-date funds also tend to have higher fees. These fees can eat into your bottom line and become costly over time.
Carefully consider your 401(k) investment choices
There are many 401(k) savers who rely on target-date funds, but that doesn’t necessarily mean it’s the right choice for you. Before you decide, check out the different options that 401(k) plans offer.
For example, you may find that your 401(k) offers low-cost index funds that you can put your money into. When you buy shares in an S&P 500 index fund, you gain exposure to hundreds of large, well-established businesses across a variety of industries.
And while keeping all or most of your 401(k) in S&P 500 funds may not be your best bet during or near retirement, you can always shift to safer assets as that milestone approaches. You don’t need a target date fund to do that.
The purpose of funding a 401(k) is to prepare for a financially secure retirement. But making the wrong investments can get in the way of that goal. Rather than take on such risks, consider your plan’s investment options and don’t assume that a target date fund is the best place to put your money.
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