10 Questions to Ask Before Investing Your 401(k)

September 6th, 2011, by

Q: What is the best way to invest your 401(k)? Is it also advisable to have an IRA?

Rocky Mt, NC

A: Let me address your last question first. It’s fine to have an IRA, but if your employer provides a match to what you put in your 401(k), invest enough to at least get that match. You might also want to invest in an IRA if you don’t like the investment choices in your workplace retirement plan. With an IRA, you get to choose how your money is invested.

I can’t tell you how to invest your retirement money. That answer has to come from you. The best advice is for you to figure out a few things. Here are 10 questions to consider:

  1. When do you plan to retire?
  2. Will you get a traditional pension?
  3. How much Social Security do you expect to collect at age 62, at your full retirement age and at age 70, should you choose to wait that long to collect?
  4. Do you have any other savings?
  5. How much debt do you have?
  6. What expenses do you think you will have in retirement?
  7. Will you still have a mortgage or need to pay rent?
  8. Are you married?
  9. Will you still want to get a part-time job?
  10. How much risk do you want to take in your investment choices?

You may wonder why all the questions?

Because all your answers to these and other questions will help you figure out how to invest your money.

For example, if you are near retirement and you don’t have much saved, you may not want to be too risky with your investment choices. If, on the other hand, you have a few decades before you retire, you could afford to be more risky because you have a lot of time for the market to go up and down.

You should also determine how much you need to save for retirement. On the Choose to Save Web site, go to the Ballpark E$timate section, which links to a two-page worksheet that will help you determine if you are saving enough for your retirement.

Last modified: September 6, 2011 at 1:21 am