There’s nothing like a trusty 401(k) to help you prepare for retirement. But it’s not enough just to set up a retirement account. You have to contribute to it—and contribute regularly. So the question is: How well have you been contributing to your 401(k)?
If you’re like most Americans, you might not want to answer. In fact, only 13% of Vanguard investors maxed out their 401(k) contributions in 2017. (1) And when you add in the fact that nearly a quarter of American adults don’t even have a retirement account to begin with, you can begin to see the problem. (2)
But there are ways to avoid the retirement issues millions of Americans are soon to experience. Topping that list as one of the best ways is to make use of (and hopefully someday maximize) your 401(k), which allows you to take advantage of your employer’s matching program (basically free money), lower your taxable income, and benefit from compound interest.
Here’s how to get started.
Step 1: Determine Your “Doable” Number
The maximum contribution for 2020 is $19,500 (or $26,000 if you’re over age 50). That’s $1,625 per month.
For most people, saving $1,625 per month might seem impossible. But then again, most people don’t start with the maximum right off the bat—they set an achievable goal and work from there.
So, after examining your current financial situation (take-home pay, mortgage, student loans, etc.), how much can you feasibly save? Are there any expenses you could cut back on so you can bump that number up?
The important thing is to challenge yourself and set a specific start date.
Step 2: Take Baby Steps
If you determine your baseline savings goal and make a habit of hitting it each month, you’ll already be ahead of most other Americans.
But the work doesn’t end there. Now you have to take baby steps to gradually increase your monthly savings. What will be your goal for next year? What can you do to earn more money (or spend less) so that you can achieve it?
We recommend writing out the answers to these questions and posting them somewhere that will keep your game plan top of mind.
Step 3: Automate
If you try to rely on memory and self-discipline to save each month, you’re setting yourself up for failure. When you see the money sitting there in your checking account, it’s just too tempting to spend.
That’s why we always recommend automating the process. Set it up so that your 401(k) contribution is automatically deducted from your paycheck. If it gets deducted before you get paid, you won’t miss it as much.
Step 4: Know When NOT To Contribute
We all have unique circumstances, which means there’s no blanket formula that will work for everyone. Depending on your situation, there might be instances when it’s not a good idea to max out your 401(k). By working with a financial advisor one-on-one, you can be sure you’re always contributing the right amounts to the right accounts.
We at Whittenburg Wealth Partners are determined to help you plan the most efficient way to save your money. If you think our firm would be a good fit for your financial needs, easily schedule a no-fee, no-obligation virtual appointment or contact us at 801-839-7050 or firstname.lastname@example.org.
Austyn Whittenburg is a wealth planner and partner at Whittenburg Wealth Partners, a family-owned and family-operated financial and wealth management firm located in Salt Lake City, Utah. Austyn has 7 years of experience as a wealth planner and spends his days helping business owners, emerging successful families, and their ensuing generations simplify their financial lives and discover meaningful solutions. Austyn received a Bachelor of Science in Finance from Brigham Young University and holds the Certified Financial Planner™ (CFP®) and Certified Business Exit Consultant (CBEC®) credentials, his FINRA Series 7 through LPL Financial and 66 registrations through LPL Financial and Stratos Wealth Partners, and his life, health, disability, and annuity insurance licenses. Austyn is active in his community of Herriman, Utah, where he resides with his wife, Ciera, and two young sons, Grayson and Graham.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.