How to Maximize Your 401(k) When You’re on the Verge of Retirement

Keep your nest egg working in your favor with these five tips.

By Kelly Campbell June 16, 2015 | 10:53 a.m. EDT


You have the date set for leaving your longtime employer, and the time frame is one year out. You may have a plan for retirement, but what should you do with your qualified plan?

Many people think of their company retirement plan as an investment they have very little control over – something they can add money to, but that is completely subject to the risks of the market. While this may be true, you really do have more control than you think.

If you are close to your last day of work, you should be proactive and consider following these five steps to keep your nest egg working in your favor.

Get the company match. This should go without saying, but some people are still not putting away enough money to receive their full company matching contribution. Remember: This is free money, but often, you must put away a certain amount to get the full match. For example, most plans will give you a 50 percent match on up to 6 percent of your income. That means if you put away 6 percent, the company will give you 3 percent. Now, instead of only your 6 percent working for you, you will have 9 percent added to your plan.

Max out your contributions. You are in your prime earning years, and it is time to invest accordingly. Just before retirement, people are likely earning more money than they ever have in their lives. Many of their financial responsibilities, like kids at home, college costs and paying off debt have been satisfied. But now that the real money is coming in, it is time to put away as much as you can. The more you have in your retirement plans, the better prepared you will be for your retirement.

Reallocate your investments. If the market were to go into a downward spiral right before you retire, that could devastate your plans of enjoying your golden years. Being this close to retirement, it is time to consider being a little more conservative. Not that you should move all of your portfolio to cash, but you should not take on unnecessary risk in your later years.

Think of it this way: If you lose 50 percent of your funds, you will need a 100 percent return just to get back to where you started. Here is where it gets worse: If you lose 50 percent, and you are taking out 4 percent, you will have to have a 118 percent return to get back to even. That is simply too high of a risk.

Consider rolling over your funds early. Years ago, you had to leave your employer before you could roll over your retirement plan. But over the past few years, the rules have changed. Most plans have a clause that allows you to move your employer plan to an individual retirement account beginning after age 59 1/2.

The reason you may consider this is to have the ability to further diversify your plan assets. While most plans offer you about 10 to 20 different investment options, you will typically have hundreds or even thousands of options in a brokerage IRA. With those choices, you can likely build a much more diversified portfolio. And you want to diversify as you get closer to leaving your steady paycheck. As always, each individual should consider the fees and expenses of each option and consult with their financial advisor before making a decision.

Construct a written retirement plan. Everyone should have a written financial/retirement plan. While you should have this constructed well before you retire, it is never too late to get started.

The retirement plan is designed with the goal to show where you are today and take you out through your mortality. In other words, your plan will take you from today past your life expectancy and tell you whether your money will likely last, how much you can spend and what rate of return you need to retire comfortably. It is very similar to having a road map for a long trip (or a GPS.)

Lastly, the financial plan is important to do before you retire, but it is equally important to monitor each year of retirement. The plan will show you what path you should follow, and you can review it each year to ensure you stay on track.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Kelly Campbell, certified financial planner and accredited investment fiduciary, is the founder of Campbell Wealth Management and a registered investment advisor in Alexandria, Va. Campbell is also the author of “Fire Your Broker,” a controversial look at the broker industry written as an empathetic response to the trials and tribulations that many investors have faced as the stock market cratered and their advisors abandoned their responsibilities to help them weather the storm.

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