Separating 401(k) Fact from Fiction

It is one thing to have confidence in your ability to make sound financial decisions for your future but it is something else entirely to have the knowledge to back up that confidence. That’s the paradox facing many of today’s workers. While they may understand the importance of contributing to their 401(k), they may not always know how that particular investment works with other long-term savings plans to ensure the best possible financial plan for retirement. In any case, employees should look to advice from qualified financial professionals to help them create the ideal financial portfolio toward retirement.

401(k) Can Come Up Short

One of the easiest ways to prepare for retirement is to adequately fund a 401(k), a practice that is no longer the norm. In fact, approximately half of Baby Boomers have set aside $100,000 or less for a retirement that could last 20, 30 or more years while approximately 15 percent saved more than $500,000, according to PWC’s 2016 Employee Financial Wellness Survey.

But even when properly funded, your clients should look beyond their 401(k) for their retirement savings. “If their employers do not offer a matching contribution, clients may be better off investing their retirement money in an IRA instead … Clients can also contribute to a 401(k) plan and an IRA at the same time, and the employer’s sponsored plan charges investment and other fees, according to Employee Benefit News.

For years, financial experts agreed that 401(k) contributors who retired at 60 could expect to withdraw 4.5 percent of the balance each year to financially sustain their life after work for 30 years. Today, that adage is on less firm ground, considering the increased length of people’s lives. It’s also important to consider whether or not you plan on leaving money to family members or other individuals or organizations.

Thinking Beyond 401(k) Accounts

While the 401(k) may be a huge element of retirement funding, it is far from the only option. In fact, according to USA Today, if employers don’t offer matching contributions, your clients may be better off investing retirement money in an IRA. Despite perceptions, today’s employees can contribute to a 401(k) plan and an IRA at the same time.

Employees can increase contributions to a 403(b), 457, 401(k), a Thrift Savings Plan, a flexible-spending account, a health savings account, and a dependent-care flexible spending account to build up retirement funds, according to Kiplinger.

Social Security benefits should be weighed carefully. Opting to take monthly payments at 62 will decrease your payments while deciding to hold off on collecting your benefits could result in a substantial increase. According to Money, the basic rule of thumb is that Social Security payments increase by 7-8 percent a year for each year retirement is delayed past 62.

Date Posted: May 9, 2017