With defined-contribution retirement plans, there’s more to consider than how much to invest.
If your workplace offers a defined-contribution retirement plan, like a 401(k) or 403(b), you can use it to save for retirement in a tax-advantaged way. While making sure you contribute what you can to your retirement plan is a big consideration, there are several other factors to think through. Here’s just some of what to look for.
1. What are my investment choices?
Typically, defined contribution plans offer some choice when it comes to investments, and often, they’re funds. Some funds consist primarily of stocks, others are made up of bonds, and yet others have a mix. There also may be another type of choice between funds: index versus actively managed. Index funds typically buy securities matching a publicly published index, like the S&P 500. Actively managed funds, on the other hand, usually employ a fund manager or management team who specifically selects securities to include in the fund.
2. What are the fees for each investment choice?
This is another aspect of your retirement plan you may be overlooking. Each investment choice typically carries its own fee. This is often called “expense ratio,” and the higher it is, the higher the fee. It may be a good idea to figure out whether the fee for each fund is worth the investment.
3. How often to check in on…
There are plenty of other aspects of your retirement strategy you might consider, but hopefully the above gives you a meaningful overview of where you might start. The important thing is to do your homework. But if you still feel overwhelmed, make sure to seek advice from a qualified professional.
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