Retire Well: 7 Ways to Make the Most of Your Employer Retirement Plan

This week is retirement week at Faith and Finance and we’re going to touch on some issues that some people just don’t want to think about now.

There will come a time when (believe it or not) you will start to slow down in work and may even retire.  When this time comes, you’ll want to have enough assets to let you live comfortably and most of all – continue to reach others for Christ.  Making the most out of your retirement plan can help you achieve these goals – and here are some tips to help you.

1. Take Advantage of the MATCH

This sounds obvious, but some people just don’t care to think about it or may not know it exists.  An employer match is the fastest way to grow your investment and is an excellent return on your contributions each paycheck.  Do yourself a favor and contribute AT LEAST the match to your retirement plan at work.

2. Increase Contribution with Raises

Ok this will take some discipline.  It’s not easy to see your paycheck get smaller, but if you get a raise, consider putting 10% of the raise in your retirement account.  This will increase your total contribution just slightly, but the difference at your retirement can be huge!

3. Purchase those Stock Options

Some companies allow employees to purchase the company stock at a discount within their retirement plan.  If you believe in your company and feel that it is a solid investment, take advantage of the discounted price.  BUT, be sure to diversify.  You probably shouldn’t invest over 10% – 15% in company stock.

Need proof?  Just rewind a few years back to Enron where over 60% of the company’s stock was issued to employees.  Can you imagine losing 50% of your retirement account with no chance of getting it back?

4. Diversify, Diversify, Diversify

Most company plans will provide you with mutual funds that are well diversified.  If you are a more savvy investor and wish to invest in specific types of funds that aren’t offered in your employer plan, then open an IRA with a company that gives you options to diversify.  (Keep contributing to your employer plan if they match your funds)  Be careful not to become so engrossed with a certain investment that you neglect to diversify your funds and actually do something irrational – hint: if it’s being promoted on late night infomercials or includes a steak dinner…run away.

5. Contribute Unused Paid Time Off

I love this option! Some employer retirement plans actually allow you to contribute a portion of your unused vacation time into your retirement plan.  If you are considering a change in jobs and don’t need the paid time off cashed out, why not bump up your retirement savings with your unused paid time off?  If your plan allows it, you might even be able to contribute the vacation time while your still working.  Check with your employer to see if they offer this ‘out of the box’ option.

6. In-plan ROTH conversion

Do you wish you had more ROTH funds in your retirement account?  With the newest ruling passed this September, you can actually convert funds in your employer retirement account to ROTH.  The exact rules regarding which funds you can convert may vary with your retirement plan, so talk with your plan administrator or call the company that holds your retirement account to see if the in plan conversion is an option.  Depending on your tax situation, you might benefit by converting a portion of your funds to ROTH.

7. Project Conservatively

The last thing you want in retirement is to come up short of your financial goal.  By using conservative return estimates, you can prepare for retirement without losing sleep every year if the market doesn’t return like it has in the past.  A conservative estimate for returns is to use 6% to 8%.  Now I know you’re thinking, “I need to be earning 10% or more in the stock market because it’s earned that in the past.”  What you’re not accounting for is a decade like 2001 – 2010 to wipe out half of your savings or leave it at the same balance as it was ten years ago.  I don’t want to sound negative – I just want you to be realistic and if the market outperforms your estimates, you’ll be pleasantly surprised.

*** Retirement Calculator ***

I think this is a great calculator to see if you’re on track.  We’ll talk more about planning for retirement, but I wanted to provide you with this calculator for now.

Are there creative ways you’ve used your employer sponsored retirement plan to help prepare for your future?