5 Tips for Those Over 40 To Get the Most Out of a 401(k)

For investors over 40 who want to get the most out of a 401(k), keep reading for 5 things to do in the remaining months of 2020 that may maximize a 401(k) this year.

#1 Revisit That Retirement Plan or Put One in Place

get the most out of a 401(k) over 40

Think it’s too soon to have a retirement plan in place? Think again. 

If you had almost $200,000 average balance at retirement age and you were making $65,000 per year at your job when you retired, how long are these funds going to last you in retirement? 

Will this give you the retirement you truly desire? For most, the answer is heck no

While you may have 20+ years until retirement, the time will pass fast. And if you don’t work the plan now, you may end up short come retirement. 

Let’s look at this example to drive home the point: Let’s say you’re a 42-year-old woman who wants $1 million by the time you’re 70 (when you plan to retire). You must have $10,000 in savings today, save $10,000 for the next 28 years, and then earn 7.5% each year to reach that goal. 

The example above is why it’s important to spend time now thinking about what you want your retirement lifestyle to look like. Spend some time answering these questions… 

  • At what age do you want to retire? 
  • How much money will you need, not to just scrape by, but have a fulfilling, comfortable retirement? 
  • What do you want to do, be, or have in retirement? 

This is what you need to figure out. Write it down. 

If you already have a retirement plan, when was the last time you looked at it? Do you know if you’re on track or not? Have your goals for retirement changed in the past few months? 

If you created a plan years ago, but haven’t followed it, then hit the reset button and start planning. 

Check out our retirement calculator to see how much you’ll need at retirement, and calculate how professional help may improve your future retirement income. 

#2 Maximize Your 401(k) Retirement Savings This Year

get the most out of a 401(k) over 40

No matter your financial situation, you can make more of a difference in your retirement savings than you might think just by saving 1% more than you have been. 

Bumping up your contribution 1% might not seem like a big deal, but it adds up over time. 

Let’s say you earn $60,000 a year. If you saved an additional 1% of your salary, you’d only have $50 per month taken out of your paycheck and put into your 401(k). 

If you contributed 1% more starting in September, you could save an additional $200 between now and December 31, 2020. 

Review your budget and see if you can increase your salary deferral percentage by 1 – 10% each paycheck for the rest of 2020. 

The more you can save now, the better off you’ll be closer to retirement because your money has longer to work for you. 

Even if you only increase your salary deferral by 1% per paycheck, it will make a difference in your income at retirement. 

At a minimum, you should be contributing at least your company match. 

#3 Avoid Target Date Funds

get the most out of a 401(k) over 40

A majority of retirement account investments are in target date funds (e.g., 2020, 2030, or 2045 funds), also called lifestyle funds and retirement date funds

Target date funds are structured to automatically reallocate as you move through different life stages. 

In theory, as you age toward your target retirement date, the funds shift toward more conservative investments to protect your money

For many 401(k) investors over the age of 40 who have busy family lives, this sounds like a win-win. Invest your money, and let it do its thing until retirement. 

However, target date funds are actually riskier than many people perceive.

In fact, experts claim target date funds don’t perform as well as average investors are led to believe

Citing studies by institutional advisory firm Research Affiliates, Barron’s associate editor Randall W. Forsyth wrote in a February 2019 article, “They [the studies] show that the standard ‘glide path’ of target-date funds, which start heavily weighted in stocks and reallocate to bonds in later years, doesn’t produce the desired results.”¹

According to Rob Arnott, chairman of the board of Research Affiliates…

“You now have a trillion-dollar industry based on ideas that were never tested.”²

In response to Arnott’s statement, MarketWatch wrote in February 2019, “A trillion dollars is an understatement. 

In the U.S. alone, target-date funds held $1.11 trillion in assets at the end of 2017 and were growing about 7% a year.”³

Despite these warnings, target date funds continue to rise in popularity. According to the “How America Saves 2018” report, 51% of 401(k) investors in the study were solely invested in a single target date fund.⁴

An article titled “Global Financial Crisis and the Performance of Target-Date Funds” indicated that on average, target date funds (like 2030 or 2040 funds) invested 75% in stocks, generating average losses of over 30% during the 2008 financial crisis. Investors planning to retire in 2010 suffered significant losses because 2010 target date funds increased their common equity exposure in 2007.⁵

Morningstar analyst Jeff Holt states, 

In the long run, the biggest risk in target-date funds is that they won’t meet investor expectations for avoiding losses.”⁶

Another reason we recommend avoiding target date funds is, because they are based on the date of retirement, they fail to take into consideration that not all investors are created equal

If you’re younger and plan to retire in 2050, you’re told to select a 2050 fund. 

If you’re older and wanting to retire in 2030, you’d select a 2030 target date fund. 

What this means is investors are grouped solely based on their expected retirement date–location, age, profession, salary, risk tolerance, goals, and objectives are NOT taken into consideration. 

Basically, investing in target date funds and not actively managing your retirement account is equivalent to saying there’s a one-size-fits-all investment strategy that works for everyone. 

That makes no sense.

If you are currently in a target date fund, we suggest moving away from this option and better utilizing all the options available in your 401(k). 

At the very least, quarterly rebalance your account. 

Download our guide 5 Ways Target Date Funds Fail to Live Up to Their Promise.

#4 Rebalance Your 401(k)  

get the most out of a 401(k) over 40

When you quarterly rebalance your 401(k), you may lower the risk of your account underperforming due to target date funds that may not manage downside risk.

It seems like a simple solution, yet:

Over 80% of retirement plan participants fail to rebalance.

And only 9% have set up auto-rebalancing features where they’re available.

If you aren’t rebalancing your account allocations, you may be missing out on earning more and keeping more of your hard-earned retirement savings. 

Because unmanaged allocations may experience much larger losses in down markets and may miss the opportunity for growth during good markets. 

We recommend rebalancing your account allocations every quarter, or four times a year. 

This will ensure you regularly course correct and stay on track to meet your retirement goals

Watch the video below for a better understanding of how rebalancing works and how it may boost 401k performance in 2020.

#5 Seek Third-Party Expert Advice before the End of 2020

get the most out of a 401(k) over 40

If you agree with our recommendations to revisit your plan, maximize your savings, avoid target date funds, and rebalance each quarter, but don’t know how to do it on your own, don’t worry. Get help. 

In fact, one of the best things you can do in 2020 to maximize your 401(k) retirement savings is to reach out to a third-party expert. 

Professional 401(k) account management may help reduce retirement stress, save you time and energy, and help reduce fees. 

Although you might have basic investment knowledge, utilizing an expert to do the in-depth market research could change the performance of your account from good to great. 

 In fact, David Blanchett, Head of Retirement, CFP, CFA of Morningstar reported that participants that received expert guidance had as much as 40% more income during retirement versus those who received no Help at all.⁹ 

If you think being in your 40s is too early to seek help, it’s not. And if you think your balance is too low, it’s not. 

Getting help now will help you better plan for your retirement future. 

Click below to book a complimentary 15-minute call with one of our advisors today. 

Book a Call


  1. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  2. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  3. MarketWatch, Opinion: Target-date funds are more expensive and less effective than this simple investment plan, February 20, 2019
  4. Vanguard, How America Saves report, June 2018 
  5. The Global Financial Crisis and the Performance of Target-Date Funds in the United States – October 1, 2011
  6. Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
  7. Boost your 401(k) Returns by Rebalancing, 401khelpcenter.com
  8. http://aon.mediaroom.com/news-releases?item=136959
  9. Special Report: Fidelity puts 6 million savers on risky path to retirement, Reuters.com March 5, 2018
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