9 Tips to Build and Manage Your 401(k) Account

July 30, 2020

You’ve signed up for your company’s 401(k) plan, but that’s only the first step in saving for retirement.

Keep in mind that the primary factors which determine your success in adequately funding your retirement are how much money you save, how long you save, and the rate of return on your savings. Social Security income is designed to replace only about one-third of your work-related earnings, which means that the bulk of your retirement income will need to come from your retirement savings.

What is the best way to grow your “nest egg” and to ensure a comfortable retirement? Here are a few tips to help you make the most of your 401(k) savings: 

  1. Start saving early. Ask your HR administrator what the eligibility requirements are for your company’s 401(k) plan. The earlier you start saving for retirement, the more time and opportunity you will have to build up your account, taking advantage of the benefits of compounding. Assuming an average annual compounded return of 7% over the course of your work life, your account balance would double approximately every 10 years. Start making your 401(k) contributions as early as possible to help ensure that you achieve your retirement goals in the future.
  2. Make sure you save enough. The more you save, the more income you’ll have in retirement. At The Fiduciary Group, we recommend setting aside a minimum of 10% of your gross annual compensation for retirement from the time you start working. If you’re getting a late start in saving for retirement, you may need to increase your savings to 15% or 20%. Keep in mind the IRS has set a maximum annual contribution limit of $19,500 in 2020 for those under the age of 50. Those age 50 and older in 2020 can contribute an additional annual “catch-up contribution” of up to $6,500.
  3. Increase your contributions gradually over time. If you are unable to start with 10%, begin with what you can afford and try to increase your contribution by 1% of your gross compensation every six months or at least every year. Check with your HR department to understand the impact of additional retirement contributions on your net paycheck. This will help you adjust your budget accordingly so you can save more.
  4. Apply pay raises to retirement savings. If you receive a pay raise annually – or even occasionally – consider applying part or all of that payroll increase to your monthly retirement contributions. You won’t feel the difference and will be able to make larger monthly contributions to your 401(k) account.
  5. Take advantage of employer contributions. Many companies offer a matching contribution to your 401(k) account. Always be sure to contribute enough to qualify for the maximum employer match; otherwise you will be leaving money on the proverbial table.
  6. Understand your risk tolerance. Talk to your 401(k) plan’s investment advisors or take an online risk tolerance questionnaire to determine your overall risk tolerance. The market will fluctuate over time, and it’s important that you be comfortable with the level of short-term swings in your portfolio’s value. Your investment allocation strategy should be in line with your ability to tolerate price volatility in good times, bad times, and everything in between.
  7. Invest strategically and appropriately. Your allocation strategy (the relative portion you invest in stocks versus bonds) is the biggest driver of both the annualized returns you will earn over time, as well as the short-term volatility (both up and down) you will have to endure. Stocks tend to have more price volatility than bonds but have historically generated higher returns (average annualized rate of return over the long-term has been between 8% and 10%). Bonds, on the other hand, are more stable from a short-term perspective, but have historically returned between 3% and 5%.
  8. Adjust your allocation strategy as you approach retirement. The further you are from retirement (15+ years or more), the more time you have to ride out short-term market fluctuations. You therefore can afford to allocate much more to stocks than bonds in your portfolio.  As you get closer to retirement, you’ll want to consider reducing your allocation to stocks and increasing your allocation to bonds to lower overall portfolio risk. The goal is to create a smooth “allocation glide path” to retirement, based on your time horizon and personal risk tolerance. Talk to your plan’s investment advisors about what allocation strategy would be appropriate for you.
  9. Don’t take money out of your 401(k) account for any reason other than retirement. Resist the impulse to take loans or hardship withdrawals from your retirement account. When you take an early distribution, you are damaging your future retirement income and running the risk of incurring significant penalties as well as tax consequences. It is far more strategic to create an emergency savings fund to help you and your family cover unexpected expenses, so that you will not be tempted to prematurely take distributions from your retirement account. We recommend creating an emergency savings account that is sufficient to cover 6 months of expenses.


Remember that saving for retirement is a marathon, not a sprint. It’s important to maintain a strategic, long-term perspective and to save as much as you can for as long as you can, so your 401(k) account will provide you with sufficient income throughout your retirement.

The Fiduciary Group has a specialized team dedicated to advising 401(k) plans and plan participants. Through carefully selected investment options, appropriately allocated balanced portfolios, ongoing participant education, and constructive guidance, we strive to improve long-term outcomes for participants.

Interested in working with The Fiduciary Group’s experienced 401(k) team? Please reach out to us to get started.