What do you do if your employer doesn’t match contributions in your 401(k) at all? Should you just go with your own retirement plan?
As the saying goes, not so fast! Last week I talked about how many employers match your contributions to a 401(k) plan—often dollar for dollar or 50 cents on the dollar. This is free money. But it’s not the most important part of a 401(k)—it’s the dessert not the main course.
Like I said last time, the two most important things about a 401(k) plan are 1) it is simple and automatic and 2) it is tax-deferred. None of that changes if the plan lacks a match. So in my view, for the vast majority of Americans who have one, the 401(k) is the place to start.
I want to flesh out why the simple and automatic is important. Say you take a new job and they have a 401(k) with no match. If you fill out the paper work, sign up to contribute 6%-8% of your before tax salary, and pick investments, it is set it and forget it. After that you’ll be investing a little bit at a time—usually every two weeks or once per month. The pros call that dollar cost averaging, and it helps you buy more when the market is low and less when the market is high.
On the other hand, if you don’t fill out the 401(k) paper work and think, “Instead I will do this on my own,” you are going to have to set everything up by yourself. For most people, that’s like starting a diet or redoubling their exercise. We want to do it, but often we don’t or we procrastinate.
What if I don’t like my plan? Should I walk away from my 401(k)?
As a general rule, I don’t think people should walk away from a 401(k). These days most 401(k) plans are in really good shape. Years ago costs and quality were sometimes an issue, but there were lawsuits over the years so employers have gotten religion over them and brought their A-game.
But, even if you are in the rare situation that your 401(k) has some mediocre choices, not all of the investments in your 401(k) have to be amazing for you to enjoy good returns. You really only need a few of the investments in your portfolio to be good to have a lot of success. Find the best options, make sure you are diversified, and go with them. Figuring out which investments are worthwhile is easier than you might think. You can spend an hour on Google and go from being skeptical about your to realizing that it’s a great retirement tool.
Does that mean that it would never make sense for someone to pursue a different option?
While I love the 401(k) and really believe that it works for people, there are situations where it would make sense to go in a different direction. When you change jobs, it often makes tons of sense to switch to an IRA. The average American goes through 11 jobs in their lifetime; can you imagine trying to keep track of ELEVEN different plans? When you switch jobs, you can roll old 401(k)s into an IRA—ONE IRA. What you want to do is put your rollover IRA with a fund supermarket such as Fidelity or Schwab. Once the money is there you can select a diversified mix of funds with low fees and strong long-term performance.
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This Week’s Celebrity Instagrams (11/26-12/2)
30 photos Launch gallery
1. Little Legend and Puddy 😍😍😍😍
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2. "You on point Phife?" "all the time,Tip". 💥 #bannedfromnormal
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3. Vegan! The Impossible burger at Crossroads
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4. Lawrence #BeforeandAfterEpisodes 1-4: 184lbs 13% body fatEpisode 8: 196lbs 8% body fat S/O @coachdaveboxing with the works outs and @kildareriordan with the nutrition
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5. Jus haaaanngin out
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6. Meanwhile back at home in Atlanta GA someone mad they not on the 🛳. 😳
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7. No limits... Photo cred: Chris Bridges @ludacris
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8. new new
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9. Apparently my 260lbs is too much for the actual vines in the Hawaiian jungles to hold me without breaking and me falling hundreds of feet. So for safety purposes, I'm forced to swing thru #Jumanjj on wires strong enough to hold 12 adult buffaloes and 1 adult Rock. #OnSet #Jumanji #IronicallyIEatBuffaloDailyForLunch #MoreManThanNatureKnowsWhatToDoWith
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10. hey ma! 🎎#wcw 💙
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11. Surprise visit to our factories!!! #GoodAmerican #USA
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13. Peachy Keen 🔥✨⚡️
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14. If this don't look thankful I don't know what does. Happy Thanksgiving to you and yours. #UltraBlessed #24kMagic #SweetPotatoFly
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15. Late nights @nbcmarlon with the writers... we in here!!!
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16. There goes my baaaaaaaaabbbbyyyyy #QueenKingMagic!!! We're up to something! Ira BIG!!! Stay out our buisness -
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17. You want to win every game you play but when you come home to these faces... who cares. #ILoveYouGirls best part of my day, everyday!
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18. Steady,steady..... full size jenga.. "I got this one "???? Or do I ?
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19. Cornrows kind of day 😉@dontaysavoy2 you convinced me and I love. ❤️️
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20. #BrotherlyLove #tbt
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22. #basel #TeamLOVE @kingcombs
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23. Just introduced a special screening of @directher 's groundbreaking (must see) documentary @13thfilm with my brother @themichaelealy | @unitedblackout #blackoutblackfriday
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24. Me & Vanessa Williams giving #DuckLips #Pose on the set of #DaytimeDivas @vh1 - Coming Soon to a tv near you. Lol. - My make up done by @makeupsurgeon
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25. This picture just makes me wanna praise the Lord, you hear me!!!!!! Yes Lord brotha #TEDDYCAMPBELL What a #man !!! You are everything right on this picture husband ......... #gorgeous #stylish #classy #strong #masculine #king #sexy #debonair #gentlemenstyle And that #bible in your hand just seals the deal for me (probably cause i know that, that is what helped you become just as amazing as you look😘). While my heart and mind experiences the goodness of God at #church on Sundays, my eyes experiences the goodness of Teddy😍. Amen somebody🙌🏽. "Bless the Lord oh my soul and all that is within me bless his holy name" #myman #myhusband #goodman #blackman #dapperman #godlyman #goodfather #mybestfriend
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26. Yesterday was my mama's 53rd birthday!!!!! Got to celebrate with her all day. If this is what I have to look forward to I can't wait. Looking like a soft bucket a cocoa butter. Yaaaaaaaaaas! 😍😍😍 love you mommy!
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27. "Shout out to @PureAtlanta for getting the family right"....I'm loving this jogger. 😍😍
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28. This pic warms my heart ❤️ #myLogiebeans and aunt aunt umba @itowandabraxton 😘
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29. You will always be my baby😜. #HappyBirthdayReginae #mybaby18
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30. GC "Gods Child" Red on Red SweatSuit available now at www.MonicaApparel.com ... Take Your Crown wherever you go!! I'm pictured in a Medium... Go to the site now for other options ... cc: @trukernell
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