Retirement Dos and Don’ts for 2023

One of your smartest financial moves this year will be to run a serious maintenance checkup on your retirement saving strategy. Given what’s at stake, you need to make sure you are pushing yourself to save as much as possible and your investments still make sense for your goals. And given that there is a pretty strong chance we may fall into a recession this year, I want you to commit right now to avoiding the costliest retirement mistake out there too.

6 Retirement Must-Dos

1. Contribute at least enough to your 401(k) to get the max match.
   
   If you changed jobs recently and just relied on your plan to “auto-enroll” you, there’s a good chance you are leaving money on the table. About 1 in 4 savers aren’t contributing enough of their salary to qualify for the biggest possible matching contribution from their employer. It’s not your fault! Your plan automatically chose a starting contribution rate that is too low to qualify for the maximum match. Grrrrr. Call up HR and find out what your contribution rate needs to be to qualify for the max match. Make the switch ASAP.
    
2. Boost your 401(k) contribution rate by at least 1 percentage point if you’re not yet saving 10%.
   
   At a minimum, you want to save 10% of your salary in your 401(k). That’s the minimum. I think 15% is a smarter target. (These percentages are the combined total from your salary contributions and your employer match.)
   
   If you’re not yet at 10% or 15%, boost your contribution rate by at least 1 percentage point right now. Don’t tell me you can’t afford it. You can’t afford not to do this. And I am confident a 1 percentage point increase is something you can adapt to. Every year you are to boost your contribution rate by at least 1 percentage point until you reach your target rate. Did I mention 15% is a great target?
    
3. Vow to use half of a raise for retirement.
   
   If you land a raise this year, promise yourself right now that you will use at least half of it to boost your retirement savings. For example, if you get a 4% raise, I want you to raise your contribution rate by 2 percentage points. You can’t tell me (or yourself) that you can’t afford this, because you’re setting aside new money that you never had hit your checking account before!
    
4. Use the Roth 401(k) if it’s offered.
   
   Most plans now offer the choice to save in a traditional 401(k) or a Roth 401(k). I recommend the Roth option. If your plan doesn’t have a Roth option, your strategy should be to contribute just enough to the traditional 401(k) to qualify for the maximum matching contribution. Then do more retirement saving in a Roth IRA.
    
5. No 401(k)? No problem: Save in a Roth IRA.
   
   Roth IRAs are easy to set up at any discount brokerage, and there will be online tools to help you decide which funds or ETFs to invest in. This year, individuals with modified adjusted gross income below $138,000 and married couples filing a joint tax return with income below $218,000 can contribute $6,500 to a Roth IRA. The limit is $7,500 if you are at least 50 years old.
   
   A U.S. “total market” stock index fund or ETF is a smart core holding to build around.
    
6. Review your mix of stocks and bonds.
   
   I am all for being a long-term investor, but that doesn’t mean you can just set your 401(k) or IRA investments and forget about it. If your 401(k) plan doesn’t offer automated rebalancing, it’s up to you to check that your mix of stocks and bonds is where you want it to be. There’s no tax bill when you buy and sell shares of the funds you own inside your 401(k). And you always need to rebalance your IRA, but here too, there’s no bill when you exchange shares of 1 or more funds/ETFs, for other funds/ETFs.

1 Retirement Don’t-You-Dare for 2023

1. Don’t cash out a penny of your 401(k) if you leave your job.
   
   Right now unemployment is low. Let’s hope it stays that way. But those of you who listen to my Women & Money (and everyone smart enough to listen) podcast know that we have to be ready for the chance of a recession this year. And recessions typically lead to layoffs.
   
   I certainly hope that if you leave a job in 2023 it’s only for the best reason: you found a better job! But I’m here to make sure that no matter why you may leave a job in 2023—new opportunity or layoff—you don’t mess up your retirement savings.
   
   Listen to me good, my friend: if you leave a job, you will have the right to cash out your 401(k), or a portion of your 401(k). Don’t. You. Dare. A dollar you cash out today is a dollar that won’t be growing for your retirement down the line.
   
   And please don’t fall into the “it’s only” trap. That’s where you tell yourself “it’s only $5,000,” so you can afford to cash out your savings and use it today.
   
   But it’s not just $5,000. If you leave the $5,000 growing for 20 years it will be worth $16,000, assuming a 6% annualized rate of return. Keep it growing for 35 years and it will be worth more than $38,000. So please, no “it’s just” excuses.
   
   If the 401(k) you are leaving is terrific (translation: it has low-cost index mutual funds) you can leave the money growing there. Or if your new employer has a great 401(k), you may be able to move your money from your old plan to your new plan. The service is free, but will take a bit of paperwork elbow grease. The other option is to move your old 401(k) into an IRA at a discount brokerage. If you have the 401(k) plan provider and the brokerage work together to do this, there will be no tax on this rollover. Again, you’ll need to complete some paperwork at the discount brokerage, and they should handle the actual rollover from there. At a discount brokerage, you will have a wider menu of funds and ETFs to choose from than what your 401(k) offered.