University Employees: How To Make The Most Of Your 403(b) Plan
By Nick Fisher, CFP®
This year’s uncertainty, both economic and otherwise, has probably led you to take stock of the future. You know you want to retire someday, but do you think you’ll have the means to do so on your own terms? As an employee of a university, your greatest tool in preparing for retirement is your 403(b) plan. As such, it is crucial to make the most of it. Let me show you how.
The investments you choose in your 403(b) plan will determine the returns that you receive. However, usually investments with greater potential returns also carry greater risk. The younger you are, the more risk you can afford to take on, because you have more time to recover from potential down markets. You still want to mitigate risk, though, and the best way to do that is through diversification. Even if you are young and have a higher risk tolerance, you should take into consideration all of your investment accounts to make sure they’re working together to maintain an appropriate level of risk and mixture between stocks and bonds.
Know Your Limits
The best way to maximize your 403(b) plan is by maximizing contributions. To do this, you first need to know the IRS contribution limits. For 2020, you can contribute up to $19,500 or $26,000 if you are over age 50. By maximizing contributions, you will not only build your next egg faster, but you will also lower your taxable income, which should lower your current tax bill.
Rebalance Your Account
If your 403(b) investments are diversified between stocks and bonds, not all of them will move in the same direction or at the same rate. When stocks drop significantly or go shooting up, as they have recently, it can throw off your asset allocation. For example, if you prefer to have 60% of your account in stocks and 40% in bonds, a strong market recovery can leave you with 70% of your funds in stocks and only 30% in bonds. This exposes you to more risk than you had decided you were comfortable with. To counteract that, you need to rebalance your account and move some money from stocks to bonds in order to lower your stock exposure to 60%. Rebalancing accounts at least once a year is a wise way to manage risk and optimize your 403(b) plan.
Perhaps the greatest threat to your investment returns is the fees that you pay on those investments. Over a long time horizon, fees can eat away at your returns significantly. Because they can have such a major effect, it’s vital to know what fees you are paying. If you aren’t sure what fees you are paying, ask. Your HR department or plan custodian should be able to tell you exactly what you are paying. Also, since fees can have such a big impact on your lifetime returns, it is a good idea to utilize low-cost index funds when available.
Seek Professional Help
Your 403(b) plan is your key to a secure retirement, so you want to make the most of it. After reading the suggestions here, are you feeling empowered or overwhelmed? If you’re leaning toward the latter, then it may be time to seek professional help. You don’t have to do this alone. A financial advisor can help you analyze fees, determine an investment allocation, and rebalance your accounts on a regular basis. A good financial advisor will also help you put together a plan for your future that incorporates every area of your financial life and not just your 403(b) plan.
If you’re not sure where to start or don’t feel like you’re getting adequate advice, our team at WealthBridge Capital Management would be happy to help. Reach out to me to schedule an introductory meeting: call 614.964.9600, email Nick.firstname.lastname@example.org, or schedule a meeting here today.
Nick Fisher is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional at WealthBridge Capital Management with over eight years of experience in the financial planning industry. Nick specializes in helping retirees, medical professionals, and university employees who want to outsource their financial world to a dedicated professional who will help them achieve their goals and ultimately provide peace of mind for their financial future. Nick graduated from The Ohio State University with a bachelor’s degree in business administration, finance, and insurance. When he’s not working, Nick and his wife enjoy traveling to visit friends and family who live throughout the country. They are active volunteers with their church, Rock City, as well as with the United Way through LINC, a young professional group dedicated to fighting poverty in Columbus. To learn more about Nick, connect with him on LinkedIn.