Leveling Up Retirement Savings With 401ks

Yamilet Suarez
Assistant Vice President/Wealth Advisor

35% of private sector workers over the age of 22 don’t work for a company that offers a plan.*

Yamilet Suarez, Assistant Vice President/Wealth AdvisorWhether you’re excited about your first day of full-time employment or starting to count the years to your last, your retirement savings plan should be on your mind. It’s the key to ensuring whatever comes your way later in life, you’ll have the money available to pay for it, even though you’re no longer working.

Starting Early Offers A Big Advantage

Saving early and often can you speed along the road to financial independence thanks to compounding returns over time. Even if you are only saving the equivalent of your monthly latte budget early on, over time you’ll be able to build a nice nest egg without feeling like you scrimped to save for it. Delaying and trying to get your savings back on track when you are older, takes much larger deposits since you have less time to save making it a much rougher road.

401Ks Supercharge Savings

While saving on your own gets results, saving money using a retirement account can significantly amplify any deposits you make. Retirement contribution plans, like the 401k plans offered by many companies, are tax-advantaged accounts.
With traditional 401k plans, the money you put into the account is not counted as ordinary income, so it’s not taxed. This lowers your overall tax bill for each year you contribute. The amount you contribute also grows on a tax-deferred basis until the money is withdrawn, which can help your balances grow faster. When you do make withdrawals, they’ll be taxed as if they are ordinary income. Since many people have a lower tax rate in retirement than when they were working, this adds to the advantage.

The Roth Difference

Roth 401ks are a little different from traditional 401ks. Contributions to Roth accounts are made with after-tax dollars. So, your contributions offer no immediate tax advantage. However, at retirement, once the Roth 401k is rolled over to a Roth IRA, and that Roth IRA is opened for five years, no taxes are due on your accumulated savings or after that…ever…making this type of account very attractive. It is highly recommended to open and maintain a ROTH IRA account aside from your employer-sponsored ROTH 401k. By doing this, the five-year time clock is started much earlier.

Six Tips for 401K Retirement Savings Success

To get the most out of your retirement savings plan, here are some useful tips.

  1. Not all 401k plans are created equally. Get as much information from your employer as you can before investing.
  2. Say “yes” to matching. If your employer offers to match your contributions, save at least enough to earn the maximum contribution each year. It’s like free money, something you receive in addition to your salary and any bonuses.
  3. It’s okay to set and forget it. Many people really aren’t into managing investment portfolios, so most employer plans offer target-date funds. These funds allow you to select a date near your planned retirement date, whether that is in 35 years or three. The money you invest is managed in a way appropriate for your timeframe. You don’t have to make any additional decisions.
  4. Just ask. If there is something you don’t understand, ask for help. After all, it’s your money. Most employer plans have a contact person you can talk to. And, if you want a second opinion, stop by the bank, we are happy to help.
  5. Keep your eye on the prize. Retirement is a long way off, what happens in the markets or to the economy during a single day, week or even a year, is like noise when you’re investing for 15-35 years from now.
  6. Start gradually. Get used to saving by starting with an amount that is comfortable. As you earn raises or bonuses, siphon off a portion of them toward retirement. Once you are on your way, sit down with a wealth advisor to determine what you do need to save to achieve your goals.

If you lack access to a retirement account at work, work for yourself or own a business that is too small to support a 401k plan, come in and talk to us. There are several tax-advantaged accounts you can consider to help boost your retirement savings. We’re always happy to talk you through your options. Contact me at 630-844-8633.

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How to Navigate the Wealth Management Milestones in Your Life

Jacqueline Runnberg, CFP®

Jacqueline Runnberg, CFP®Everyone travels a different path through their financial life. But like any well-traveled road, there are milestones along the way. Here are the common life events you are likely to pass through—along with a few roadblocks and detours—and a checklist of what you should be considering as you reach each one.

First Job

  • Understand employee benefits and employer-sponsored (especially tax-advantaged) savings opportunities for health care expenses, retirement and student loan repayment
  • Create a will and set up powers of attorney

Career Changes

  • Review the impact a change will have on your insurance coverage
  • Rollover your retirement account to keep savings on track and tax deferred

How to Navigate the Wealth Management Milestones in Your LifeRelationship Commitments

  • Talk about money with your life partner—different attitudes can be reconciled but not if they are unknown to one another
  • Know each other’s debt load and credit scores
  • Determine how your assets and income will be pooled together, saved and spent
  • Decide the best way to obtain health insurance coverage
  • Review your named beneficiaries on your employee benefits and in your will and power-of-attorney documents

Home Ownership

  • Buy what you need, not the maximum you can afford—it’s likely going to be your biggest asset

Side Trips
These events can require that you immediately revisit your portfolio allocation, named beneficiaries, and state and local laws affecting personal property, liability and estate settlement:
➢ Moving to a new state
➢ Starting a business
➢ Receiving an inheritance

Children

  • Review your budget for different spending needs
  • Initiate saving for future expenses
  • Revisit your will or trust documents and be sure to name a guardian
  • Start saving for college

Detours
To avoid unintended consequences, update documents that name beneficiaries and those for insurance coverage with these events:
➢ Divorce
➢ Unemployment

Retirement Planning

  • Determine what retirement means to you
  • Periodically reassess and gauge your progress
  • Plan for healthcare expenses
  • Understand your options and benefits under Social Security

Estate Planning

  • Consider that having more assets require more tax planning to ensure efficiency
  • Take into account beneficiary considerations
  • Preserve wealth as it grows and the process becomes more complex
  • Plan for your legacy

Roadblocks
Be prepared to reroute for:
➢ Illness or disability
➢ Changes in laws

Retirement

  • Test income plan before fully retiring
  • Determine the best withdrawal strategy for your circumstances

We’ve helped many generations of financial travelers plan for their journey and for any side trips, detours or roadblocks they might encounter along the way. Give us a call to meet with a wealth management representative today. We’ll help you determine the best route for realizing your financial goals.

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.