Ways to Be More Aggressive with Your 401(K)
By Saghir Aslam
Rawalpindi, Pakistan

 

(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)

There are two ways to be more aggressive with your 401(k): adjusting your asset allocation and increasing your contribution rate.

The numbers of active participants in defined contribution plans nearly double the number of 1992.

Take age into your analysis

Investment choices in 401(k) can be heavily influenced by risk tolerance, but age should also be a factor, people nearing retirement may want to make up some ground by being aggressive, is when you are more than 15 years from retirement. At 10 to 15 years until retirement, a common recommendation is to be 60% in stocks and 40% in bonds. Generally speaking, cut back equity investments 5% every five years, and monitor asset allocation every three years.

“As people get older, they should be a little more conservative with asset allocation”.

 

Be aggressive with early contributions

An easy way to be aggressive with a 401(k) outside of your asset breakdown is to invest what you can early in your career-at least enough to reach an employer match, the 15-40-85 method. That means saving 15% of your income for 40 years, which should give you enough money at retirement to live on 85% of your preretirement income. As retirements increase in length, however and depending on what you want your retirement to look like, your numbers may vary.

Your financial advisor can help you determine what you need to save, even early on.

Many employers 70% to 80% match employee 401(k) contributions. Historically, those matches most often have been dollar for dollar, he says up to 4 % of their salary. But just investing up to that level of employer match only gets workers to an 8% contribution.

Some employers have tried to help encourage their workers to save more by offering a 50% match for employees who contribute up to 8% of their salary. And in general, people are saving more. The current average employee contribution is about 7.6% of salary. But most workers still fall short of annual contribution limits, which are $18,000 for 2015.

“People are not saving nearly enough for the type of retirement that they are expecting”. “The biggest lever they can pull is increasing their contribution rate”.

 

I.   R.    A.  And.  Roth.  I.  R.  A

These are other great vehicles for retirement. Here we will talk about individual retirement account (I.    R.    A.   ). Uncle Sam allows you to put away invest money regularly each month or once a year however it fits best in your schedule.

One can save invest little over $5000.00 each year for your retirement. Even though you are saving small amount each year, you will be happily surprised how it grows. Key is to start investing early and invest regularly. Inshallah you will see this turn in to millions by the time you retire. At a later date I will write in detail about I.  R.   A.  Mand. Roth.  I.  R.   A. Both have pros and cons. I will share information with you and you can decide what you think you like what will fit better in your program, one thing I would suggest whatever vehicle you decide but do invest you be glad that you did.

(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)

 

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Editor: Akhtar M. Faruqui
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