How Your 401(k) Account Can Work for You

The sooner you begin making contributions to a workplace retirement plan, the sooner you can watch your account make money for you. With factors like compound returns, you can rest easy knowing you’re on the right path to retiring comfortably. In this handy guide, we break down these components so you can understand just how your 401(k) continues to work for you long after you’ve made your contributions.

Key Takeaways:

• In time, your 401(k) account changes in value; these changes are considered returns.
• The earlier you can contribute to your 401(k), the more you can take advantage of compound returns.
• You can see how compound returns affect your 401(k) account by viewing your balance on your employee dashboard.

How compound returns work in your 401(k):

The value of your investments in your 401(k) changes over time. This change is a return: gains and losses on an investment. Sometimes returns are negative, meaning investments have lost value. However, returns have trended upwards historically.

Think of compounding returns as a snowball effect. The more you roll a snowball down a hill, the more snow it will collect, and the larger it will become. Following this same idea, the longer you leave your funds invested in your 401(k), the more that returns will compound on returns, and compound, and so on, allowing you to accumulate more earnings on the investment. After 30 years, this snowball effect can equate to some pretty big savings! Investing as early as possible is important for maximizing compounding returns.

In addition to unleashing the power of compounding returns, maximizing time in market helps to smooth over those years with negative returns and gives your investments time to recover value.  

Tracking your 401(k) account balance:

Now that you understand how contributing to your 401(k) can compound into retirement savings in the long run, you can see it in action on your employee dashboard. Simply sign in to view a snapshot of your investments and how they’re performing.

Your handy Retirement Outlook Calculator can show you how much you may gain in returns from your investments before retirement. Manipulating a few key variables, such as your contribution rate, will allow you to see the power of compounding returns in real time.

Based on this information, you may decide to adjust your contribution rate to maximize the power of compounding returns. Click on change contribution rate, found on the right side of your screen. From there, click edit contribution rate. You can contribute a dollar amount or a percentage of your paycheck. Once you’re confident in your adjustment, click save changes.

 Conclusion:

Investing in your 401(k) as soon as possible can go a long way towards helping you prepare for retirement, thanks to the effects of compound returns and dividends. Sign in (or set up your account if you haven’t already) to see how your investments have compounded over time.