Maximizing Your 401(ok), and Is Retirement Unhealthy for Your Mind?

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 to date in 2026.

• A brand new examine 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 Warfare II.

To catch full episodes of all The Motley Idiot’s free podcasts, take a look at our podcast center. If you’re prepared to speculate, take a look at this top 10 list of stocks to buy.

A full transcript is under.

Must you purchase inventory in Morningstar proper now?

Before you purchase inventory in Morningstar, take into account this:

The Motley Idiot Inventory Advisor analyst group simply recognized what they consider are the 10 best stocks for buyers to purchase now… and Morningstar wasn’t one in all them. The ten shares that made the minimize might produce monster returns within the coming years.

Think about when Netflix made this listing on December 17, 2004… when you invested $1,000 on the time of our suggestion, you’d have $469,293!* Or when Nvidia made this listing on April 15, 2005… when you invested $1,000 on the time of our suggestion, you’d have $1,381,332!*

Now, it’s price noting Inventory Advisor’s whole common return is 993% — a market-crushing outperformance in comparison with 207% for the S&P 500. Do not miss the newest prime 10 listing, accessible with Inventory Advisor, and be a part of an investing group constructed by particular person buyers for particular person buyers.

See the 10 stocks »

*Inventory Advisor returns as of Could 16, 2026.

This podcast was recorded on Could 9, 2026.

Robert Brokamp: Benefiting 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 positive 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% to date this yr, whereas the S&P 600 index of Small Caps is up 15.7%, and the FTSE International 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 lessons that I assumed had been price highlighting. The primary was revealed 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 massive firms, appears to have disappeared lately, and plenty of have questioned whether or not it really ever existed. Larry cites a examine 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 really sturdy and chronic. The primary group are labeled Fallen Angels, that are former massive caps that lately crashed in worth. In case you 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 likely to underperform typically by 2% to just about 6% per yr. Transferring on to worldwide shares, a current article from Morningstar’s Christine Benz identified that after years of underperformance, non-U.S. shares surged in 2025, returning 32% for the yr, in comparison with 18% for U.S. shares. This marked a dramatic reversal from the prior stretch. If you go from 2009-2024, non-U.S. shares returned about 7.6% in comparison with 14.5% for home equities. However past higher current 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 many who slept via 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 typically exhibited even decrease correlations with U.S. equities, partly as a result of their dominant sectors, comparable to vitality and fundamental supplies, differ from the tech-heavy U.S. market, and since international locations like China comply with a unique financial cycle.

On a associated notice, I assumed I might talked about a current chart from Paul Kudronski, which highlighted that no different nation invests within the inventory market like People. Fifty-five % of U.S. households have publicity to the inventory market. The following three international locations with the best ranges of inventory possession are Canada at 49%, Australia at 37%, and the U.Ok. at 33%. People put money into the inventory market, largely so we will retire. However retirement may not be so good for us. This brings us to our subsequent merchandise, which is a examine from the College of California, Irvine entitled, “Does employment sluggish cognitive decline?” The reply is, sure, the examine 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 scale back the danger of cognitive decline, which may in flip forestall the onset of dementia.” The results are significantly concentrated amongst males ages 51-64. That is only a current instance of many research, which have discovered that retirement is probably not so wholesome for individuals bodily, mentally, psychologically, or socially.

That mentioned, there are many comfortable, wholesome retirees. I do know many. Those who appear to do the very best, in keeping with the MassMutual retirement happiness examine, 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, in keeping with information 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 during the last yr was $31.22 trillion. We People now spend extra on the curiosity to service our debt than we do on protection or Medicare. In response to an announcement 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 previously 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 hear. With debt now above 100% of GDP, it is solely a matter of time till we move the all-time document of 106% reached within the fast aftermath of World Warfare II. This time, the borrowing is not born from a seismic world battle, however reasonably a complete bipartisan abdication of constructing exhausting selections.” Subsequent up, what selections it is best to make along with your 401(ok) when Motley Idiot Hidden Gems Investing continues.

ADVERTISEMENT: Dell PCs with Intel inside are constructed for the moments that matter, for the moments you intend and those you do not constructed for the busy days that flip into all evening examine periods, the second you are working from a restaurant and understand each outlet is taken. The occasions you are deep in your movement, and absolutely the last item you want is an auto replace throwing off your momentum. That is why Dell builds tech that adapts to the way in which you really work, constructed with an enduring battery, so you are not scrambling for the closest outlet and in-built intelligence that makes updates round your schedule, not in the midst of it. They do not construct Tech for Tech’s sake. They construct it for you. High quality expertise constructed for the way in which you’re employed @dell.com/delpcs constructed for you.

Robert Brokamp: In case you’re like most working People, 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, whenever you retire will rely largely on how effectively you handle the account. Listed below are 11 ideas for benefiting from your employer-sponsored retirement plan, and only a notice, I will use the time period 401(ok) to use to all varieties of outlined contribution accounts.

Step #1, save sufficient and get the complete match. The consensus amongst specialists as of late is that employees ought to goal for a financial savings price of 15% of their family revenue and even greater in the event that they’re getting a late begin on saving for retirement. Thankfully, the vast majority of employees do not must 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 price of 6%. These employees want to save lots of 12%, after which the employer kicks in 3%. Sadly, most individuals aren’t saving 15%. The truth is, a 3rd of workers do not even contribute sufficient to obtain the complete match, in keeping with Vanguard. On the very least, be sure you’re grabbing that free cash your employer is providing.

Step No. 2: Select the best kind of account. Most 401(ok)s enable for each conventional and Roth contributions. Your first resolution is, when would you like your tax break? If you would like it at present at the price of paying taxes on withdrawals and retirement, then go along with the standard account. However then do one thing sensible with the cash you save by having a decrease tax invoice this yr. Use it to save lots of much more cash for retirement or another objective like school. Simply do not squander it. However, when you’re keen to surrender a tax break at present in alternate for tax-free withdrawals in retirement, maybe since you count on to be in a better tax bracket in retirement, then go along with the Roth. The opposite advantage of the Roth is that you just aren’t compelled to take required minimal distributions at age 73 or age 75, when you had been born in 1960 or later. This does not must be an either-or resolution. 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 enable workers to determine the kind of account that the employer match goes into. For the massive majority of us, the match goes into a standard account. That method, it is not taxable revenue to us, however the withdrawals will probably be taxed. In case your plan permits you to have the match deposited right into a Roth account, the match will probably be added to your taxable revenue for the yr, however then the withdrawals will probably be tax-free. I will additionally level out that there are some conditions wherein an worker really has a selection of the account supplier, and that is commonest for academics, the place some college districts enable for a couple of 403(b) or 457 supplier. useful resource for academics and different workers of nonprofits is 403(b)s.org, which charges the plans supplied by lots of the college 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 really 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 revenue, 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 price. Morningstar recommended a couple of tips with the best being a rule that they dubbed, spend twice your years to retirement. For instance, when 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 spite of everything, 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 more cash you will finally have. Due to this fact, contributing the utmost to your 401(ok) as quickly as attainable, reasonably than step by step over the course of the yr, ought to lead to a much bigger nest egg in retirement.

Nevertheless, earlier than you pursue this technique, it is crucial to ensure this would possibly not scale back the match you’ll obtain out of your employer. In most conditions, the match is distributed on a per-paycheck foundation. In case you max out your 401(ok) early, chances are you’ll miss out on a few of these matching contributions. The important thing right here is to seek out out in case your plan affords what is called a true-up, wherein any missed matches are deposited towards the top of the yr. In case your plan does not supply a true-up, then it is best to keep away from maxing out the account earlier than the ultimate paycheck of the yr. 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 contains the worker and employer contributions. In case your account hasn’t reached that annual restrict, you may 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 development on these after-tax contributions is tax-deferred. That’s, you do not pay taxes till you make the withdrawals, that are taxes bizarre revenue. Moreover, whenever you go away your employer, you may 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, really, 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 development, the conversion will not value you something. On prime of all that, some plans enable for in-plan Roth conversions of those after-tax contributions, which then enable them to build up tax-free. This technique is usually known as the mega backdoor Roth. This may get very sophisticated. Be sure you be taught extra, beginning with discover out whether or not that is even accessible 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 at least one 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 won’t be penalized, however it solely applies to the plan supplied by the employer you had 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. Multiple in three employees money out their 401(ok)s after they change jobs reasonably than rolling it over to an IRA or 401(ok) at their new job. This value them 1000’s of {dollars}, maybe tens, perhaps even a whole lot of 1000’s of {dollars} in taxes, penalties, and foregone development on what that cash might have earned if it had been left in a retirement account.

Step Quantity 7, select the very best investments. One of many greatest drawbacks to most 401(ok)s is that their funding selections are restricted to a group of mutual funds. The scenario has improved over the previous 20 years or in order extra plans now supply index funds and goal date funds, however many plans nonetheless additionally embrace at the least some underperforming, actively managed funds. To judge the funds in your 401(ok), hearken to our Could 2 episode wherein my colleague Amanda Kish and I mentioned the elements to contemplate. In case you desire to put money into particular person shares, you is probably not out of luck. Roughly 1 / 4 of 401(ok)s supply a facet brokerage account that permits members to purchase shares, bonds, ETFs, in addition to select from amongst 1000’s of different mutual funds. This feature is not at all times well-publicized inside firms, so verify along with your HR group 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 along with your different accounts. Ideally, you have got 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 would chubby these in your 401(ok) and give attention to different asset lessons and your different accounts. Many Motley Idiot members and even workers, myself included, like a mixture of index funds and particular person shares. Since virtually all 401(ok)s supply index funds, many Fools use their employer plans primarily for the index portion of their portfolios.

Step Quantity 9, benefit from options supplied by the supplier. Lots of the monetary companies companies that function 401(ok)s supply extra advantages. They will embrace 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 elements of your private funds. We’ll additionally supply wealth administration companies, although often for a further price.

Step Quantity 10, transfer your cash when you can. In case 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 notice that when you’re retiring between the ages of 55 and 59.5, chances are you’ll 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 have the ability to transfer the cash whereas nonetheless working on your present employer. This is called an in-service distribution and is mostly accessible to workers at ages 59.5 or older, however not at all times. Test your plan supplier to see if that is accessible 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(Ok) boat. The plan has excessive prices, subpar funding choices, or restricted flexibility. There is not any brokerage account, no service distributions, no after-tax contributions, no mega backdoor Roth, then everybody’s retirement prospects endure. Perform some research, collect information, and recruit allies who will help 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. The truth is, that is what a couple of 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. Thankfully, management at The Idiot was very open to us forming a committee and creating what’s now a superb plan, if I’ll say so myself. There is not any hurt in asking, and when you’re profitable, your future retired self and people of your colleagues.

Effectively, thanks. It is time to get it performed, Fools, and I simply laid out a variety 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 would personal, click on on the varied tabs and hyperlinks, discover the doc that describes the options of your plan. You might uncover assets that you just did not know had been accessible to you. That, my associates, is the present. Thanks for listening, and because of Bart Shannon, the engineer for this episode. As at all times, individuals on this system might have curiosity within the investments they discuss and The Motley Idiot might have formal suggestions for or towards, so do not buy or promote investments based mostly solely on what you hear. All private finance content material follows Motley Idiot editorial requirements, it’s not authorised 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 policy.

Maximizing Your 401(k), and Is Retirement Bad for Your Brain? was initially revealed by The Motley Idiot