Be honest with yourself. Are you anywhere close to where you need to be when it comes to retirement planning? If you’re like most Americans, the answer to that question is a resounding “No!” The fact is that current surveys suggest that most of us haven’t even bothered to save $10,000 toward our retirements, with many millions having saved nothing at all. Does that sound like a recipe for a comfortable retirement? Quite the contrary, right? At the pace that America is going right now, the future will be filled with many millions of would-be retirees forced to rely on government benefits that may or may not even exist.
Here’s the thing: the days of generous company pensions and reliable government benefits are rapidly nearing their end. Companies don’t typically invest in lifelong employment or the benefits that such employment traditionally entailed. The government is quickly approaching $20 trillion in debt, with many times that amount in unfunded liabilities. If you’re relying on the idea that you can find a job with a comfortable no-cost pension and then supplement that benefit with Social Security when you retire, you may be in for a rude awakening when that time comes. If, on the other hand, you work for a company that provides a 401(k) plan that you’ve been neglecting, then it’s time to take that 401(k) contribution seriously.
It’s All Up to You
There aren’t many things that are truly certain in this world. Death. Taxes. Gravity. You know the list. One thing that is relatively certain, however, is that your retirement planning is something that you must control as best you can. No one else is going to make sure that you have the retirement assets and income that you need to maintain a comfortable lifestyle and enjoy your twilight years. There are no well-meaning government benefactors who have made it their mission to ensure that you’re taken care of when you reach Senior Citizen status. The cold, hard reality is that your well-being is ultimately up to you.
That doesn’t mean that there won’t be opportunities presented by other people, companies, and agencies. It just means that you and you alone are responsible for ensuring that you take advantage of every opportunity that comes your way. Where retirement planning is concerned, the 401(k) plan is an opportunity that far too many people ignore. You cannot afford to let yourself be one of those people. It’s your retirement, after all. Seize control of the planning and make it count.
Why 401(k) Contributions Matter
The 401(k) plan is an incredible wealth-building opportunity for those who have access to it – but it matters little if you never make your contributions. When you do, though, you can watch your retirement savings grow by leaps and bounds. By contributing a certain percentage of your income every month, you can take advantage of substantial tax savings, while leveraging the power of compound interest to grow wealth on a sustained basis. The more you contribute now, the more you’ll have when you finally reach your target retirement age.
For 2016, the maximum amount of allowable contributions was $18,000 – and persons who were 50 or older could contribute an extra $6,000 if they got a late start with their plans and need to play catch-up. Now imagine that level of contribution over a period of twenty or thirty years. If you fully commit to making those contributions and allowing that money to build up over time, the compounding principle at work will help to ensure that you’re well on your way to meeting your financial goals.
Without those contributions, the math is against you. Social Security experts estimate that your government benefits at retirement will likely only cover 40% of your current income. Chances are that you don’t want to reduce your lifestyle to the level necessary to survive on less than half of what you currently make. When you factor in the fact that financial advisers typically recommend saving until you have enough to match 80% of your current earnings on an annual basis, it’s easy to see why your individual retirement planning is so critical.
To Max or Not to Max?
The main problem that most workers encounter with their 401(k) plans is the need to balance today’s financial concerns with tomorrow’s retirement expectations. Obviously, you have bills to pay today. You cannot just expect to max out contributions every year without ensuring that your other obligations are met. At the same time, though, there are few things more important from a long-term standpoint than making sure that you can fund your own retirement. That may mean sacrifices in the here and now to prepare for the soon-to-come.
On the other hand, if your employer provides matching contributions, then your course is clear: you must do everything you can to max out your contributions each year. The reason is simple: every dollar that you fail to contribute in those circumstances is a dollar in employer contributions that you’re leaving on the table. When matching contributions are in play, review your budget and spending habits to see where cuts can be made to free up your finances and enable you to make those maximum contributions – or as close to that amount as you can.
The Impact on Estate Planning
The seriousness you bring to your 401(k) contributions will also impact your other strategies, like financial planning and your estate plan. You’ll need to determine your priorities and adjust your overall strategy to ensure that your goals and objectives are properly aligned. To do that, you’ll need the help of an experienced retirement planning attorney who can help you with a comprehensive estate plan that addresses all these important issues.
Kulas Law Group, P.A., Medicaid & Estate Planning Attorneys can provide you with the guidance and assistance you need to make the most of your 401(k) contributions while still pursuing an estate plan that meets all your most critical objectives. To learn more about how we can help you with your retirement planning needs, contact us online or call us today at (772) 398-0720.