Are you even sure what you’re investing in? How is the performance? What about expenses? If you’re like most people, the answer to these questions is “I’m not sure.”
Due to the complexity of 401k plans, not being sure is entirely understandable. While there are some incredible savings and tax benefits, there often isn’t the education that needs to go along with 401k planning. Additionally, it’s unfortunate that people are missing out on incredible opportunities by not investing in their 401k.
If you’re not self-taught or your coworker doesn’t show you the ropes with how to properly invest or, more importantly, how much to invest, it’s basically left up to you, which then becomes a guessing game. Moreover, often even your employer isn’t able to help out much.
Your retirement depends on you making the right decisions on how much and where to invest. A 401k is one of the biggest nest eggs you will ever acquire, so it is paramount that it's treated diligently and with care.
What is a 401k and what are the benefits?
A 401k plan is a retirement savings plan that is sponsored by an employer. It allows employees to save and invest a piece of their paycheck before taxes are taken out, and taxes will not be applied until the money is withdrawn from the account (there are a few nuances between the traditional 401k and Roth 401k that we won't dig into here).
Now, let's take a look at some of the benefits.
1. Employer Matching - If your employer matches any portion of your 401k contributions, it is virtually free money for investing. With that in mind, your 401k should be strategically implemented by a financial advisor to ensure that you are always participating in the best available investment strategies.
2. Tax Breaks - Two tax breaks come with your 401k contributions, and your money grows tax-deferred. If you were to have that money invested outside a 401k, you would have to pay taxes on your interest at the end of the year. A 401k lets that money grow until you withdraw it, which in turn allows your money to increase much more quickly.
3. Compound Interest - This is interest on top of interest on top of interest...you get the point. Long term, this is one of the most powerful factors in the universe and allows for significant financial gains.
4. Contributions - As of 2018, the maximum contribution is $18,500 and, if you're over 50, you can contribute an additional $6,000. The maximum is normally increased around $500 every year.
5. Diversified Portfolio - A 401k offers a cost-efficient way to create a professional and diversified portfolio.
6. Efficient Movement - You can roll over the 401k tax-free to an IRA or another 401k, which keeps your savings tax-deferred.
7. It's not Social Security - To put it bluntly, Social Security is not enough for retirement. It is unreasonable and unrealistic to expect that Social Security will provide enough money for a good standard of living by the time Generation X and Millennials retire. With this in mind, a 401k or workplace retirement program reviewed and optimized by a professional financial advisor offers peace of mind that you are planning efficiently for retirement.
With the above in mind, letting your 401k operate without a plan in place can result in an incredible amount of value lost in both the short and long term. Let the Certified Financial Planners® at NextGen Wealth help design a plan that's right for you.
NextGen Wealth's 401k Review Service
The Certified Financial Planners® at NextGen Wealth have designed this service for individuals who are already actively investing in an employer-sponsored retirement plan but have questions about whether they are doing the right thing.
Who does the 401k review service benefit?
1. Individuals who are already participating in a 401k or workplace retirement plan.
2. Individuals who are inexperienced in retirement investing.
3. Individuals who want to learn more about financial investing.
What Does This 401k Review Service Provide?
A wonderful question and one that we will address right now.
The first to better understand your current situation and determine if it’s a right fit, and the second to review the 401k Plan we’ve created and most importantly, implement it
Professional research to review all of the investment options available within your 401k
Your own specific investment recommendations
Retirement Road Map
A retirement road map to show if you’re investing enough or how much you should be saving
Personalized Financial Plan
Access to create your own free Personalized Financial Plan (I highly recommend taking advantage of this!)