Retirement, Maximize Savings with 401(k)
Due to the questionable future of Social Security, it is more important than ever to take advantage of every retirement savings vehicle available to us. Social Security was not designed to be your only source of income at retirement, but according to the Social Security Administration approximately 65% of Social Security recipients who are age 65 or older receive at least half of their income from it, and more than one third of them rely of it for about 90% of their income. Social Security should be a supplemental income source. In addition, there is still the question regarding its solvency after 2037.
There are four primary sources of income for retirement:
Earned income
Social Security
Personal investments
Since we don’t know the future of Social Security, we don’t know what our ability to work will be in retirement and personal investments are not what they should be, it is imperative that everyone who has a Retirement Plan, such as a 401(k) or 403( b) contribute as much as possible. It is especially important if the company you work for has a company match program in place. For instance, if you contribute 5% of your income to your 401(k) plan, and your company matches that contribution dollar for dollar, then your contribution becomes 10% immediately. If you don’t contribute at least the maximum amount your company will match, it is the same as leaving money lying on the table.
Currently more than 40 million Americans are saving for their retirement through company sponsored 401(k) plans, and have approximately $1.9 trillion invested in those plans. Obviously more and more of us are realizing the value of saving for retirement by investing in 401(k) plans. These Plans offer a way to save for retirement with pretax dollars, plus the savings in the plan will grow tax-deferred (you don’t pay any taxes until the funds are withdrawn). Since the contributions are deducted from your paycheck, it is one of the easiest ways to save for retirement, and you control how much you invest and how it is allocated. The most important thing is to ensure you contribute regularly and diversify your investments.