A 401k can be a great way to save for retirement. The money can be automatically taken from your check and invested before you even see it. Automating investing is a very helpful way to keep on track with your investing goals. There are tax benefits to investing in a 401k. Putting money into a 401k allows you to defer taxes until you pull money out of the account. If you invest in a Roth 401k you pay taxes upfront but do not pay taxes when you pull money out of the account. If your company offers a match to your contributions this is great! This is free money and a guaranteed return. Part of my plan to achieve financial independence is investing in the 401k plan offered by my company.
I invest pretax dollars into a regular 401k which is automatically taken out of my pay each payday. My company does offer a small match to contributions. In my opinion, the options for investing in my 401k are not that great. It has a limited number of funds that are available. Because of this I have set it up fairly conservative in order to preserve capital.
As you can see in the image above, I have a high concentration in bonds. The bond section is made up of three funds: a total bond market fund, a world bond fund and a high yield bond fund. The next highest allocation is to small/mid/specialty. This section is made up of four funds: a mid cap index fund, a commodity fund, a real estate fund and a small cap growth fund. The third highest allocation is to large cap value which is a S&P 500 index fund. Next is the global/international allocation which a total international stock market index fund. Rounding out the allocations is a balanced fund.
At the time of writing this my 401k makes up less than 5% of my retirement savings. Because of my current circumstances, I am only investing 6.5% of my annual income into my 401k. Once I pay off my debts and get to a point that I can fully fund my IRAs I will increase the amount that I contribute to my 401k. Right now, the 401k is pretty much on auto pilot. I continue to automatically contribute each pay day and collect the employer match. I check in on the account every month to see where it is at but do not actively manage it. This is a set it and forget it account for me. When I retire in a little over ten years I will likely roll this account over into my IRA so that I can invest the money into stocks that pay dividends. Until that time, I will continue to contribute and watch it grow.
*Disclaimer – I am not a financial professional. The information shared here should not be considered financial advice. I am just a factory worker sharing my experience as I strive to achieve financial freedom. Before investing or making any financial decision do your own research and due diligence and consider seeking the advice of a financial and/or tax professional.