With the pandemic still upon us, are you thinking about your retirement savings? Let me tell you why you should. Time is a wasting asset. And, there is no time like now (National 401(k) Day) to take action.
National 401(k) Day, which originated with the Plan Sponsor Council of America, reminds us to do a personal checkup, just like New Year’s Eve reminds us to plan for the new year.
We all need a nudge every now and then. Why not now, in celebration of 401(k) Day?
401(k) Checkup
Here is the agenda.
Think about these important questions:
Are you participating in your company’s 401(k) plan?
Are you taking full advantage of your company’s matching contribution?
Are you maximizing your salary deferral?
Are you investing appropriately for your age?
If you just started working at a new job, have you checked out eligibility requirements?
Two of three people working in the private sector are eligible for 401(k) and other defined contribution retirement plans, according to a recent study (“The Evolution of U.S. Firms’ Retirement Plan Offerings”).
If you are one of them, you need to know the answers to these questions for good reason: You owe it to yourself to optimize time and to maximize the benefits your plan offers.
There is simply no better way to save for retirement.
401(k) Steps
First, it’s easy to do: Set up a salary deferral through payroll deductions. You won’t need to think about whether to start contributing once you make that decision.
Second, review your tax withholding allowances to consider reducing your withholding. By doing that, you can keep your paycheck as high as possible even though you are saving money. The rationale: Your pre-tax salary deferral is not subject to income taxes; in fact, if you look at your W-2 after enrolling, you’ll see your taxable income decline by the amount of your salary deferral. The deferral is not reported as taxable income on your W-2, and neither is your employer’s 401(k) matching contribution. That means your tax bill will be lower — and you will be saving for retirement at the same time.
Third, select your investment options from the 401(k) plan’s menu. Your plan may offer target-date options that simplify investment choices — choose the target-date fund that matches your time horizon.
Last, but certainly not least, take the advice of a 2020 401(k) Champion®, L.D.
Good Advice
L.D. started saving small amounts of money through her 401(k) when she was 23; 18 years later, her 401(k) had grown to more than $300,000. What would her future retirement be like if she hadn’t started at 23?
“More than likely I’d be working well into my 70s, living in a small apartment on a fixed income with no room to splurge on things I enjoy. . . I want that time of my life to be my best years, not my worst.”
Shining a Light On 401(k) Fans
Take some time now to do a personal financial checkup. It’s an investment in your future retirement. If you are interested in competing for the 2021 401(k) Champion® Award, launched today, go here: 401kchampion.com. The award shines a light on 401(k) participants who love their 401(k)s. My firm and I are the sponsors of the award.
Questions?
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