Three 401(k) Tips for People Over 50


A person approaching retirement should begin to prepare for the process early. When doing so, one will not run into any unpleasant surprises. Luckily, a person in their 50s still has plenty of time to save build their savings for the future. Here are three 401(k) tips for people over the age of 50.

Catch up: An individual in their 50s should put as much money in their 401(k) as possible. While person under 50 can contribute up to 17,500 to their 401(k) plan, an individual over 50 can contribute an extra $5500. Since most people in their 50s enjoy a decent income, it is possible for many to save $23,000 in one year. This huge benefit allows an employee to fatten his or her 401(k) account significantly. Since the account gives an investor tax benefits, it is imperative that a worker take advantage of their 401(k). However, when receiving a match from the company, one should proceed with caution. Often an employee will receive a match in the form of company stock. This can create a problem for an individual investor; when one invests heavily in one stock, they are taking an unnecessary risk. For this reason, one should make sure that they do not have more than five percent of their net worth in company stock. This should be the case even if an employee thinks his or her company is financially sound. Remember, with the catch-up provision, a person over 50 years old can save more than $20,000 a year in their 401(k).

Volatile: While an investor should not get rid of stocks, he or she should move to large dividend-paying blue chips. When investing in large companies, one will mitigate their risk. Fortunately, most companies provide their employees with plenty investment choices in their 401(k). Ideally, one should invest in a dividend-paying mutual fund that hold a basket of solid blue-chip companies. However, a worker in their 50s can still take some investment risk provided they do it outside of their retirement savings. Without a doubt, an employee approaching 60 years old must move their money out of high-risk microcaps and into blue-chip businesses.

Fees: It is never too late to try to save some. When using a 401(k) is an investment vehicle, many people ignore fees. Sadly, when administrators charge high fees, investors suffer. One must realize that fees hurt an investor because they will have less money to buy stocks and mutual funds. For this reason, an individual in their 50s must scour their 401(k) booklet to find any extra charges. When finding unreasonable fees, one should move their money to a better provider. With this step, one can save money without much effort. Without a doubt, fees quickly add up and can hurt the returns an investor enjoys.

An individual in their 50s must take a cautious approach. Fortunately, even when cautious, an individual can still enjoy solid gains. At the same time, an employee must increase his or her 401(k) contributions as high as they can afford. When doing this, a worker in their 50s will build a sizable nest egg that he or she can enjoy later in life.