My husband and I have both worked for a couple different companies already in our short careers. Gone are the days of people working at one place their entire life, right? I mean, now that most places don’t offer pensions to workers, there’s not much of an allure to sticking around if the opportunities for advancement don’t exist.
Anyway, that’s not the point of this post. The point I want to discuss has to do with 401(k)s. Thankfully, both the hub and I had started saving for our retirement in our first jobs and have continued to do so since (compound interest, baby!) However, that does make for a kind of hairy situation when you leave a job and have to figure out what to do with the money you contributed to your employer-sponsored retirement plan.
The three options are to leave it where it is, move it to your new job, or open up a Rollover IRA. I won’t get into details on those things today—I’m more interested in telling you about setting up your 401(k) once you’ve started that new position.
For one thing, don’t wait. Unless you live in a place or work for a company that automatically enrolls employees in the plan, you’ll need to sign up. You should contribute—at LEAST—the minimum amount to get the match from your company. I would recommend that that percentage of your paycheck actually be closer to 10%, but you can build up to that over time.
The next part is choosing your distribution of investments. In the past, Josh and I have always been able to take advantage of target funds, in which you select a date for retirement and it prescribes you the appropriate mix of investments (stocks, bonds, etc.) The thinking is that the younger you are, the more aggressive you should be (i.e., more stocks!)
With my husband’s most recent new job, he didn’t have that choice. Yet, it worked out well for us because it became a learning experience. We had to pick his investment mix manually, trying to stay to a fairly aggressive blend since we still have a long time until we retire. I’m glad I understand it better now, but if you have the target fund option, go with it! It makes your retirement investing so much easier.