Practical Cents #6: How Should My 401k Be Invested
For those a few years from retirement whose 401(k) has become their largest asset, this video argues that investment choices should follow from a financial plan rather than come first. It covers how a plan helps determine safe withdrawal amounts, a cushion for market downturns, and what may be left for loved ones, and why allocation should be driven by personal goals rather than generic age-based rules.
For those a few years from retirement whose 401(k) has become their largest asset, this video argues that investment choices should follow from a financial plan rather than come first. It covers how a plan helps determine safe withdrawal amounts, a cushion for market downturns, and what may be left for loved ones, and why allocation should be driven by personal goals rather than generic age-based rules.
Key takeaways
- As retirement approaches, there is less time to recover from major investment mistakes in a 401(k).
- Investment choices are only one part of a retirement strategy; a financial plan is what ties them to specific goals.
- A financial plan helps determine safe withdrawal amounts, a downside cushion for market declines, and what may be left for loved ones.
- Allocation decisions should be driven by an individual's plan and goals rather than by generic rules based on age or income alone.
Hello everyone and thank you for joining me. Picture this: you are approaching retirement in the next few years. You are so close you can practically taste the freedom at this point. You've built a substantial nest egg in your 401(k), one that you and your family are going to rely on in retirement as your largest financial asset, but you don't feel confident in how the money is invested. In fact, you've really not put much thought into it during the course of your career. Just simply save well and it will take care of itself. Does that sound familiar?
Are you someone who has been so hyper-focused on getting to the destination of retirement that you've neglected to consistently review how the vehicle itself, the investments in your 401(k), are going to carry you to and through the journey? I don't want to alarm you, but this is a huge decision, arguably one of the most meaningful, as it involves your biggest asset. You've got this large sum of money, one you've worked to build up over the last 30-plus years, and you've got little time to recover from any big mistakes as you near retirement.
So, let's start by doing this. Take a deep breath. While the investments are an important element, they are just a piece of your overall long-term financial plan. The plan itself is going to help you determine how much you can withdraw annually to meet your spending goals, how much of a cushion you'll have if the market has a severe downturn, and how much, if any, will be left for your loved ones when you're no longer here. The plan is essential, no two ways about it. Without a plan, solely focusing on the investments is like giving someone an itinerary for a trip without knowing their destination.
So now what? Rather than making blanket recommendations solely based on things like your age or income, at Presilium, we start each relationship with a financial plan, one that is regularly updated and reviewed year over year as your goals and life evolve. Your plan and your goals drive the allocation, allowing us to create a portfolio for you that works today and throughout retirement.
Once we have that, we can help create a portfolio for you and your family to meet those goals. So again, if this is a question that has been nagging at you, is my 401(k) invested as well as it could be, well then we'd be honored to learn more about you, learn more about your goals, and how to execute upon them. Essentially, why you saved to your 401(k) in the first place. Thanks for joining me, and until next time.
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