Personal Finance 101: Generation X Series – Three Simple Steps To Managing Your 401K

Generation X is classically defined at people born between the years 1965 and 1979. Pretty much those of you in your early 30’s to the mid 40’s. However, having given personal financial advice to thousands of people, I can tell you that many of you who were born 1960 to 1964 fit within the Generation X type of financial and personal attitude. Since I am 42 and have had a good deal of financial success, I’ve noticed some big mistakes that I see my generation making with their money and how they think about money. This week I wanted to discuss three simple steps to help you better manage your 401k plan at work.

For most Gen X’ers who are not business owners, the 401k plan offered through your workplace will be one of the mainstays for you to build up enough money to make work optional. Next year in April, you will begin to be able to transparently see all of the fees your 401k provider and money managers are making so you know the actual cost to you inside of your 401k plan. Even though this is one of the most important pieces to future wealth creation for Generation X, I’m still amazed about how many people ignore regular checkups on their old and new 401k plans. Here are three ideas that may help you better manage your 401k plan even if you don’t want to watch it every day.

  1. ACT YOUR AGE – Everyone likes to still be a little silly even as they get older. However, you don’t want to be silly with your money. The most simplistic model I have used over the years is that the amount of money you should have in stable and bonds fund should be equal to your age. If you are 41 years old, then you should have 41% of your 401(k) in bond or stable funds. Then, if you subtract 41 from 100 it will give you the number 59. This is the percent you should have in equity type investments that may represent real estate, large-cap, mid-cap, and small-cap type stock funds. The only thing that may alter this type of mix is if you need substantially different rate of return in your financial plan to reach your financial independence and freedom. Sticking to this formula will help you be more disciplined in your 401k mutual fund picking than just picking a mix and never looking at it again.
  2. CLICK THE REBALANCE BUTTON – Most 401(k) plans today will give you an option to click a button that will automatically rebalance your 401k mix. Generally, you can select an option to rebalance your 401(k) quarterly. What this will allow you to do is essentially but certain asset categories when they are low each quarter and sell those that are high. Without implementing this button, most Gen X’ers won’t go back and fix their original mix every quarter let alone that some people have NEVER done this to their 401(k) plan.
  3. MIX YOUR BALANCE OF REGULAR AND ROTH 401(k) – Since we believe tax management will be as important as investment management over the next 25 years, you should consider having some balance over time of a pre-tax 401(k) option and the after-tax 401(k) option. The most important part of this long term strategy is to provide flexible distribution at the lowest tax rate possible when you take your money out down the road. If you are in a really high tax bracket, it may make sense to do mostly or all pre-tax contributions. If you are in a low tax bracket, you might just choose to pay the tax now before you make your 401(k) contributions. Irrespective of your current tax situation, you may want to consider getting a balance of both as your 401(k) assets build as this will be one of the primary legs on the stool of retirement income.

Here’s the worst thing to do over time. Ignore your 401(k) and just assume you can’t control your destiny no matter what happens in the markets. Consider applying these simple smart money moves steps to manage your 401(k) for that day of making work optional!

Go to www.oxygenfinancial.net to request a consultation with the leading financial experts for Generation X in the country.

Written by:

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®

Co-CEO and Founder of oXYGen Financial, Inc

Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.

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About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

Read More About Ted Here

Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA's BrokerCheck website.

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