Maximizing Your 401(k), and Is Retirement Bad for Your Brain?

On this episode of Motley Idiot Hidden Gems Investing, Motley Idiot retirement knowledgeable Robert Brokamp discusses the next:

• The S&P 500 is close to all-time highs, however small caps and worldwide shares are doing even higher up to now in 2026.

• A brand new research finds that retiring earlier than 65 might speed up cognitive decline.

• The U.S. authorities’s debt-to-GDP ratio is now over 100%, nearing the all-time excessive set after the top of World Battle II.

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A full transcript is beneath.

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This podcast was recorded on Could 9, 2026.

Robert Brokamp: Profiting from your 401(ok) and does retirement make your mind decay? That and extra on this Saturday’s Private Finance version of The Motley Idiot Hidden Gems Investing podcast. I am Robert Brokamp. This week, I lay out 11 steps to creating certain you’re maximizing the worth of your work-based retirement plan, however first up, some headlines that caught my eye this previous week.

The S&P 500 is up 6.4% up to now this 12 months, whereas the S&P 600 index of Small Caps is up 15.7%, and the FTSE World All Cap ex-US Index of worldwide shares is up 10.6%. I got here throughout a few articles this week, and each of those asset courses that I believed have been price highlighting. The primary was printed on wealthmanagement.com and comes from Larry Swedroe. He factors out that the so-called small-cap premium, and that is the quantity that small firms have traditionally outperformed giant firms, appears to have disappeared in recent times, and plenty of have questioned whether or not it truly ever existed. Larry cites a research from the Bridgeway Capital Administration Group, which argues that the issue is not the premium itself, however how we outline small cap.

Their key perception, two teams are dragging down returns and obscuring a premium that’s truly strong and chronic. The primary group are labeled Fallen Angels, that are former giant caps that just lately crashed in worth. If you happen to take out the shares that grew to become Fallen Angels over the touring for years, the returns of small caps enhance by 1.57% yearly since 1960. The opposite group is new market entrants, like IPOs, SPACs, Spin-Offs, which are inclined to underperform typically by 2% to just about 6% per 12 months. Transferring on to worldwide shares, a latest article from Morningstar’s Christine Benz identified that after years of underperformance, non-U.S. shares surged in 2025, returning 32% for the 12 months, in comparison with 18% for U.S. shares. This marked a dramatic reversal from the prior stretch. Once you go from 2009-2024, non-U.S. shares returned about 7.6% in comparison with 14.5% for home equities. However past higher latest returns, worldwide shares additionally started to decouple from the U.S. market, which reinforces their worth as diversifiers.

The Morningstar Developed Markets ex-US index had a 0.92 correlation with U.S. shares over the three-year interval ending in 2022, however that determine dropped to 0.71 by the top of 2025. For individuals who slept by way of statistics class, do not forget that a correlation of 1 implies that two investments transfer in lockstep, so a decrease quantity means much less correlation and doubtlessly extra diversification. Merging markets have usually exhibited even decrease correlations with U.S. equities, partly as a result of their dominant sectors, comparable to vitality and primary supplies, differ from the tech-heavy U.S. market, and since nations like China observe a distinct financial cycle.

On a associated be aware, I believed I might talked about a latest chart from Paul Kudronski, which highlighted that no different nation invests within the inventory market like Individuals. Fifty-five % of U.S. households have publicity to the inventory market. The subsequent three nations with the very best ranges of inventory possession are Canada at 49%, Australia at 37%, and the U.Okay. at 33%. Individuals spend money on the inventory market, largely so we are able to retire. However retirement may not be so good for us. This brings us to our subsequent merchandise, which is a research from the College of California, Irvine entitled, “Does employment gradual cognitive decline?” The reply is, sure, the research included roughly 40,000 older adults from 1996-2018 and located that, “correlational proof means that leaving the workforce earlier than retirement age might speed up the tempo of cognitive decline” and that, “employment close to retirement age seems to cut back the chance of cognitive decline, which might in flip forestall the onset of dementia.” The consequences are significantly concentrated amongst males ages 51-64. That is only a latest instance of many research, which have discovered that retirement is probably not so wholesome for folks bodily, mentally, psychologically, or socially.

That mentioned, there are many joyful, wholesome retirees. I do know many. Those who appear to do the perfect, based on the MassMutual retirement happiness research, usually tend to fill their free time with a number of sorts of actions, together with spending time with family members, exercising, pursuing hobbies, and touring. Additionally, be sure you’re doing issues to maintain your mind sharp.

Now let’s transfer on to the variety of the week, which is 100.2%. That is the U.S. authorities’s debt-to-GDP ratio, based on information just lately launched by the Bureau of Financial Evaluation, which famous that the debt held by the general public on March 31 was $31.27 trillion, whereas GDP over the past 12 months was $31.22 trillion. We Individuals now spend extra on the curiosity to service our debt than we do on protection or Medicare. In response to a press release from the Committee for a Accountable Price range, “the nationwide debt is now bigger than the U.S. financial system, about twice the historic common. We have heard loads of alarm bells up to now few years about our fiscal path, however this one rings particularly loudly. The true query is whether or not or not our leaders in Washington will pay attention. With debt now above 100% of GDP, it is solely a matter of time till we go the all-time report of 106% reached within the instant aftermath of World Battle II. This time, the borrowing is not born from a seismic world battle, however slightly a complete bipartisan abdication of creating exhausting selections.” Subsequent up, what selections you must make together with your 401(ok) when Motley Idiot Hidden Gems Investing continues.

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Robert Brokamp: If you happen to’re like most working Individuals, your No. 1 technique for accumulating sufficient cash to retire is by contributing to an outlined contribution plan, comparable to a 401(ok), 403(b), or the Federal Financial savings Plan. Consequently, once you retire will rely largely on how effectively you handle the account. Listed below are 11 suggestions for taking advantage of your employer-sponsored retirement plan, and only a be aware, I will use the time period 401(ok) to use to all forms of outlined contribution accounts.

Step Number one, save sufficient and get the total match. The consensus amongst consultants nowadays is that employees ought to intention for a financial savings charge of 15% of their family earnings and even greater in the event that they’re getting a late begin on saving for retirement. Happily, nearly all of employees do not need to give you that 15% all on their very own. Greater than 90% of employers match contributions, with the most typical formulation being a match of $0.50 for each greenback saved as much as a financial savings charge of 6%. These employees want to avoid wasting 12%, after which the employer kicks in 3%. Sadly, most individuals aren’t saving 15%. In reality, a 3rd of workers do not even contribute sufficient to obtain the total match, based on Vanguard. On the very least, be sure you’re grabbing that free cash your employer is providing.

Step No. 2: Select the fitting kind of account. Most 401(ok)s permit for each conventional and Roth contributions. Your first choice is, when would you like your tax break? If you’d like it as we speak at the price of paying taxes on withdrawals and retirement, then go along with the standard account. However then do one thing good with the cash you save by having a decrease tax invoice this 12 months. Use it to avoid wasting much more cash for retirement or another aim like school. Simply do not squander it. Alternatively, in the event you’re prepared to surrender a tax break as we speak in change for tax-free withdrawals in retirement, maybe since you count on to be in the next tax bracket in retirement, then go along with the Roth. The opposite advantage of the Roth is that you simply aren’t compelled to take required minimal distributions at age 73 or age 75, in the event you have been born in 1960 or later. This does not need to be an either-or choice. You’ll be able to contribute to each the standard and the Roth account so long as the mixed quantity does not exceed your annual contribution restrict.

Moreover, some plans these days permit workers to determine the kind of account that the employer match goes into. For the big majority of us, the match goes into a standard account. That approach, it is not taxable earnings to us, however the withdrawals might be taxed. In case your plan permits you to have the match deposited right into a Roth account, the match might be added to your taxable earnings for the 12 months, however then the withdrawals might be tax-free. I am going to additionally level out that there are some conditions by which an worker truly has a alternative of the account supplier, and that is commonest for lecturers, the place some faculty districts permit for multiple 403(b) or 457 supplier. A superb useful resource for lecturers and different workers of nonprofits is 403(b)s.org, which charges the plans provided by lots of the faculty districts within the U.S.

Step Quantity 3: Save extra annually. Everybody loves getting a increase, however a 2020 report from Morningstar discovered that it truly can postpone a employee’s retirement. Why? As a result of many individuals use a increase to extend the price of their way of life, which in flip will increase how a lot they should have saved earlier than they’ll retire as a result of everybody desires to keep up their way of life in retirement. The report discovered that even employees who save a share of their earnings, say, 10% or so, contribute extra to their 401(ok)s after a increase, however it’s typically not sufficient. Additionally they want to extend their financial savings charge. Morningstar steered just a few tips with the simplest being a rule that they dubbed, spend twice your years to retirement. For instance, in the event you plan to retire in 15 years, spend 30% of your increase, however then contribute the remaining 70% to your 401(ok).

Step Quantity 4, max out the account early or do not. Because the outdated saying goes, it is not about timing the market however time available in the market. In any case, the S&P 500 has traditionally made cash in about three out of each 4 years. In most eventualities, the earlier you make investments your cash, the extra money you will ultimately have. Subsequently, contributing the utmost to your 401(ok) as quickly as attainable, slightly than regularly over the course of the 12 months, ought to end in a much bigger nest egg in retirement.

Nevertheless, earlier than you pursue this technique, it is essential to verify this may not cut back the match you’ll obtain out of your employer. In most conditions, the match is distributed on a per-paycheck foundation. If you happen to max out your 401(ok) early, you could miss out on a few of these matching contributions. The important thing right here is to search out out in case your plan gives what is named a true-up, by which any missed matches are deposited towards the top of the 12 months. In case your plan does not provide a true-up, then you must keep away from maxing out the account earlier than the ultimate paycheck of the 12 months. Since we’re on the subject, the 401(ok) contribution limits in 2026 are $24,500 for employees who’re 49 and youthful, $32,500 for ages 50-59 and 64 and older, and $35,750 for ages 60-63. The employee’s age on December 31 determines the relevant restrict.

Step Quantity 5, create a mega backdoor Roth in case your plan permits it. Along with these aforementioned limits, there’s one other all in restrict in 2026 of $72,000 plus the related catch-up restrict for many who are 50 and older or 100% of compensation, whichever is much less. This consists of the worker and employer contributions. In case your account hasn’t reached that annual restrict, you can also make extra so-called after-tax contributions in case your plan permits. Now, don’t confuse these after-tax contributions with Roth contributions, that are additionally technically after-tax, however the progress on these after-tax contributions is tax-deferred. That’s, you do not pay taxes till you make the withdrawals, that are taxes extraordinary earnings. Moreover, once you go away your employer, you possibly can segregate these after-tax contributions from the expansion and switch the previous belongings right into a Roth IRA and the latter into a standard IRA.

Technically, truly, what you are doing is you are changing these after-tax contributions to a Roth. Nevertheless, as a result of the transformed quantity does not contain any pretax cash or progress, the conversion will not price you something. On high of all that, some plans permit for in-plan Roth conversions of those after-tax contributions, which then permit them to build up tax-free. This technique is commonly referred to as the mega backdoor Roth. This could get very difficult. Be sure you be taught extra, beginning with discover out whether or not that is even obtainable in your plan.

Step Quantity 6, do not crack your account. Withdrawals for retirement accounts earlier than age 59.5 could also be partially or absolutely taxed and penalized 10%. There are some exceptions to that penalty, a few of which apply to each IRAs and 401(ok)s, others that simply apply to 1 or the opposite. A notable exception for 401(ok)s is that withdrawals at age 55 or older or age 50 or older for some authorities plans is not going to be penalized, however it solely applies to the plan provided by the employer you have been working for at age 55 or older and provided that the plan permits it. Sadly, many individuals raid their retirement accounts lengthy earlier than retirement. A couple of in three employees money out their 401(ok)s after they change jobs slightly than rolling it over to an IRA or 401(ok) at their new job. This price them hundreds of {dollars}, maybe tens, perhaps even lots of of hundreds of {dollars} in taxes, penalties, and foregone progress on what that cash might have earned if it have been left in a retirement account.

Step Quantity 7, select the perfect investments. One of many largest drawbacks to most 401(ok)s is that their funding selections are restricted to a set of mutual funds. The scenario has improved over the previous 20 years or in order extra plans now provide index funds and goal date funds, however many plans nonetheless additionally embody at the least some underperforming, actively managed funds. To judge the funds in your 401(ok), take heed to our Could 2 episode by which my colleague Amanda Kish and I mentioned the elements to think about. If you happen to favor to spend money on particular person shares, you is probably not out of luck. Roughly 1 / 4 of 401(ok)s provide a aspect brokerage account that enables members to purchase shares, bonds, ETFs, in addition to select from amongst hundreds of different mutual funds. This feature is not at all times well-publicized inside firms, so examine together with your HR staff or plan supplier to see you probably have the flexibility to open a brokerage account inside your 401(ok).

Step Quantity 8, coordinate your 401(ok) allocation together with your different accounts. Ideally, you will have at the least a few actually good fund choices inside your 401(ok). You’ll be able to select these to play their respective roles in your asset allocation after which spherical out your portfolio with different accounts, comparable to your taxable brokerage accounts, your IRAs and even your partner’s accounts. For instance, for example your 401(ok) has a very good worldwide inventory fund and a higher-yielding money account, you might chubby these in your 401(ok) and deal with different asset courses and your different accounts. Many Motley Idiot members and even workers, myself included, like a mixture of index funds and particular person shares. Since nearly all 401(ok)s provide index funds, many Fools use their employer plans primarily for the index portion of their portfolios.

Step Quantity 9, benefit from options provided by the supplier. Most of the monetary companies corporations that function 401(ok)s provide extra advantages. They’ll embody on-line instruments, instructional articles and webinars, even entry to a monetary skilled who can talk about your 401(ok), asset allocation, and perhaps different points of your private funds. We’ll additionally provide wealth administration companies, although normally for a further payment.

Step Quantity 10, transfer your cash in the event you can. When you have a less-than-excellent 401(ok), roll over the cash to an IRA. Then you are able to do this anytime you turn jobs or retire. Simply be aware that in the event you’re retiring between the ages of 55 and 59.5, you could need to go away the cash within the 401(ok) to make the most of that age 55 exception to penalties on early withdrawals. You may additionally be capable to transfer the cash whereas nonetheless working on your present employer. This is named an in-service distribution and is mostly obtainable to workers at ages 59.5 or older, however not at all times. Verify your plan supplier to see if that is obtainable to you.

Lastly, step Quantity 11, advocate for a greater plan. Everybody at your organization, you, your boss, the HR division is in the identical 401(Okay) boat. The plan has excessive prices, subpar funding choices, or restricted flexibility. There isn’t any brokerage account, no service distributions, no after-tax contributions, no mega backdoor Roth, then everybody’s retirement prospects endure. Perform a little research, collect information, and recruit allies who can assist persuade your employer to enhance your organization’s 401(ok). Through the years, I’ve heard from listeners who’ve efficiently satisfied their employers to at the least add options to their 401(ok)s, if not change the plans altogether. In reality, that is what just a few different workers and I did at The Motley Idiot a few years in the past, as a result of within the early days of our firm, our 401(ok) frankly, wasn’t excellent. Happily, management at The Idiot was very open to us forming a committee and creating what’s now a wonderful plan, if I could say so myself. There isn’t any hurt in asking, and in the event you’re profitable, your future retired self and people of your colleagues.

Effectively, thanks. It is time to get it finished, Fools, and I simply laid out a whole lot of issues to consider in the case of your work-sponsored retirement plan. Go log into your account and poke round, consider the funds you personal and the funds you might personal, click on on the assorted tabs and hyperlinks, discover the doc that describes the options of your plan. You might uncover assets that you simply did not know have been obtainable to you. That, my mates, is the present. Thanks for listening, and because of Bart Shannon, the engineer for this episode. As at all times, folks on this system might have curiosity within the investments they speak about and The Motley Idiot might have formal suggestions for or in opposition to, so do not buy or promote investments primarily based solely on what you hear. All private finance content material follows Motley Idiot editorial requirements, it isn’t accredited by advertisers. Ads are sponsored content material and offered for informational functions solely. To set our full promoting disclosure, please take a look at our present notes. I am Robert Brokamp. Idiot on, all people.

Robert Brokamp, CFP has no place in any of the shares talked about. The Motley Idiot has no place in any of the shares talked about. The Motley Idiot has a disclosure coverage.

Maximizing Your 401(ok), and Is Retirement Dangerous for Your Mind? was initially printed by The Motley Idiot