If you are among those in the 401(k) “set it and forget it” crowd that rarely makes any changes to their account, your 401(k) needs special attention if you have a decade or less until retirement.
First, now may be the time to consider dialing down equity exposure. However, be careful how you allocate assets to fixed income. Many 401k plans offer an intermediate-maturity bond fund as an option. However, with the threat of rising interest rates, a shorter maturity bond fund would be a better bet. If your plan doesn’t offer such a fund, you might consider a stable value fund or even a money market fund. A target date fund that automatically allocates assets between equities and fixed income could also be an option for your entire 401k account.
Now’s also a good time to take inventory of any 401k accounts from former employers. If you don’t see the investment options you need, consider rolling those funds over into an IRA to afford you more flexibility.
Also, if you are over age 50, you have an opportunity to save an extra $5,500 with the “catch up” provision this year.
Finally, some plan sponsors enable participants to get customized advice for an additional fee, but you might also consider hiring your own advisor. Just as it’s important to develop an asset allocation plan that reflects your goals, timeframe, and risk tolerance, you will need to develop a plan that transforms your 401k, IRAs, and other savings accounts into a reliable, tax-smart retirement income stream. Here, in addition to properly allocating assets, the expertise of a professional advisor can be helpful to manage taxes and required minimum distributions and to ensure you have a safe withdrawal rate.