You may not live like a millionaire, but you could possibly retire as one. With today’s 401(k) plans, it’s possible to retire with $1 million in your retirement savings—even if you make less than $150,000 a year. The key is to develop solid saving habits and to use every tool available to build upon your success. The more disciplined your approach, the easier it becomes and the faster your nest egg can grow.
Get started. Now.
The sooner you start, the more you can save—and the more your money can grow. Consider most college graduates will contribute to a 401(k) for almost 40 years. If you think you can’t afford to contribute when you are first starting out, remember it’s much easier to bump up your percentages early than trying to catch up in your 40s and 50s. Increase your contribution as much as you can, when you can.
Aim for a contribution of 10-15%.
Once you establish yourself, aim to contribute at least 10%. This doesn’t necessarily mean 10% of your paycheck toward your retirement, but should include your employer match, profit sharing and any other retirement investment vehicle. It’s best to raise your contribution when you won’t feel the pinch, like as soon as a raise kicks in. This automatic deduction not only takes the guesswork out of saving, it also reduces the amount of income eligible for income taxes and can grow in a tax-favorable environment.
Meet your employer halfway.
Don’t turn down free money. If your employer offers a match on your 401(k) contributions up to a certain percentage, do at least that percentage. Almost every employer matches contributions to some extent, so find out and take advantage. It is a part of your benefits package, after all, so not contributing is like turning down a raise.
Consider your investment mix.
Ensure your money works for you. A financial planner can help if you are new to investing or if you’d like an extra set of eyes on the information. Your investment mix will depend entirely on your risk threshold and how long you have until retirement. Remember, you will save this money for a long time, and the market will go up and down—sometimes mind-numbingly so. It’s usually better to have someone at the helm who can help you stay the course through rough waters.
Don’t take money out of your 401(k). Ever.
While some things change—your job, your financial situation, your personal life—others should stay the same. Your 401(k) is no exception. Although it may be tempting to cash out your old 401(k) when you leave a job and go to the next, don’t do it. Not only are there significant tax liabilities and withdrawal penalties if you take it out early, but you also let go of all of that potential growth. Keep the 401(k) with your old employer and roll it into your new employer’s plan, or create a rollover IRA account where you can dump the 401(k)s for all previous.
Busey Wealth Management is here to make sure you make the most of your 401(k) by helping you save for retirement the right way—painlessly. To get started, contact our experts today or call 1.800.67 | Busey.
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