How Can I Increase My Retirement Savings?
Participating in an employer sponsored 401K or 403B plan is the most common way to begin a retirement savings plan. Many people feel that taking money from their paycheck could leave them strapped for cash to pay their bills. That is not generally the case because 401K and IRA accounts are funded with pretax dollars. That means when you put more in your retirement plan, less tax comes out of your pay. The result is that there is not a big difference in the amount of take home pay.
Financial planners generally recommend a contribution to your 401K savings of 10% of your annual income to stay on track to save enough for retirement. It’s common to start out by contributing enough to the 401K to get the employer match. For example, if an employer offers a 3% match, employees then contribute 3% of their pay for a total of 6% contribution. However, that is not enough to reach a desirable savings goal. It is a common misconception that the employer match is the maximum employees are allowed to contribute. In 2020, the maximum 401K contribution amount is $19,500 and if you are over 50 years old, you can make an additional “catch up” contribution of up to $6,500.
Often, I get questions about 401K plans from previous jobs. If you have moved to a new job, but your money is still with an old employer, we can help. It’s possible to combine multiple plans from previous employers into one plan even if you have both 401K and 403B plans. It all begins with a meeting to talk about what you have and make a plan on how you want to move forward. Depending on the type of plan that you have, your previous employer may have their own paperwork to fill out, as well as our paperwork. From there, we customize a plan just for you.
For those that are already contributing to your 401K and would like to save more without throwing off their monthly budget, there is an easy way to do it. Any time you get a pay raise, either for your annual merit or cost of living increase that is a good opportunity to increase your savings as well. Take a portion of the pay raise and increase your 401K contributions. You still get more in your paycheck, and you’ve increased your savings as well. For example, if you earn a 2.5% raise at your next annual review, then increase 401K savings by 1%. This will give you added savings now, and a more secure future.
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