Now's a good time to examine your 401(k) as the year ends and you get one year closer to retirement.
Scott Holsopple, the CEO of Smart401k, a firm that works with individuals and employers, offers these suggestions for anyone managing a 401(k):
- Review your retirement accounts. How much have you saved so far?
- Review your current retirement planning. Even though retirement could be a long way off, envisioning what you might like to do when you get there will help you decide how much you need to save.
- Use one of Bankrate.com's calculators to get an idea of where you stand. If you see yourself living in a mansion on the beach and you've only put away $50,000, the calculator can help you figure out your next step.
- Increase contributions to your savings plan. About 10 percent to 15 percent per year is a good target. If you're not saving that much each month, add at least 1 percent of your paycheck to what you're saving currently. "That's an easy number," Holsopple says.
- Review how you have your investments allocated. Getting some expert advice at this point is always a good idea. Leave some of your savings in cash as you approach the end of the year, so you have flexibility in the new year to rebalance again as necessary.
- Update your beneficiary forms. Beneficiary forms override wills. If you don't update yours, your money might go to somebody you really don't want to have it. For example, your ex-husband.
- Consider whether now is the right now to convert to a Roth 401(k). Both Barbara Whelehan and I have written about this topic. There are no absolutely right answers, but it's a good year to consider this issue. If you make the conversion this year, you can divvy up the taxes over three years -- 2010, 2011 and 2012.
After you've taken these important steps, pat yourself on the back. You're several steps ahead of most of the rest of the world.