TODAY   |  September 11, 2013

It’s Common Cents! Make the most of your 401(k)

TODAY’s financial editor Jean Chatzky has some for making smart moves with your 401(k) plan, like what percentage of your money should be invested in stocks or bonds, and whether you should take more risks as you get older.

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This content comes from Closed Captioning that was broadcast along with this program.

>> i'll ask you 401(k) related questions. they're all multiple choice.

>> okay. you give me your answers, a, b, or c. question number one, should you invest, if your company will match? a yes, b, no, c, it depends.

>> absolutely.

>> free money .

>> yeah and it's the best return going. you should also invest if your company won't match because there's nothing easier than payroll deductions into a 401(k). it's just a brainless automatic way to save.

>> paying yourself.

>> exactly.

>> the poker table.

>> there you go. all right. question number two. willie is all in. what percentage should you put into stocks and bonds in your 401(k).

>> right.

>> a, 60% stocks, 40% bonds , b, 70% bonds and 30% bonds , or c, it depends.

>> the easy way out.

>> you're right. as you age you want to take less risk which means less in stocks and more in bonds .

>> okay. so generally stocks riskier than bonds .

>> yes, i just answered the next question. as you get older should you be safer or take risks. a, be safer or take risks.

>> safer.

>> yeah, who doesn't want to be safer.

>> safer with age.

>> the next question is about rebalancing. do you know what rebalancing is?

>> i do not.

>> we should let you answer. rebalancing is essentially where you take that mix of stocks and bonds and you bring it back in line because the market moves. and if stocks go way up, all of a sudden you could have way too much money in stocks. so, that's how you rebalance. so here's your question, how much money would someone who rebalanced regularly have if they started with that $80,000 balance at age 40 and retired at age 65 in 2002 .

>> okay.

>> a, $300,000, b, $359,000, or c, $382,000?

>> c.

>> al, you are the winner. you can take all of willie's chips. if you didn't rebalance, just to show you the difference, you would only have the $359,000. so it actually can make a big difference on your returns at the end of the game.

>> okay.

>> all right. if you're not good at rebalancing, if you know that you are absolutely never going to do it, you want to put your money in a target retirement fund.

>> all right.

>> okay, next question. it's all about borrowing from your 401(k). if you start with an $80,000 balance, that's the average. you take a $10,000 loan. you pay it off to yourself over the next 5 years, how much will you have at retirement if you never borrowed?

>> if you never borrowed?

>> if you never borrowed? a, $638,000. b, $682,000, and c, $725,000. never borrowed. it was a trick question . a, you only have $638,000. but the -- the answer is much more than you would have had if you did borrow. it makes about a $40,000 difference.

>> and you get penalties for borrowing too.

>> you absolutely do. do we have time for the last one.