Is Your 401(k) Plan Enough?
If you work at a company that offers a 401(k) plan, especially if the plan offers matching contributions, that plan may be the most important part of your retirement investment plan. But should it be the only part? In 2018, the maximum annual 401(k) contribution is $18,500, not including employer-matching contributions. If you are at least 50 years old, you can contribute an additional $6,000 in 2018, if permitted by the plan. Your plan may impose lower limits to ensure that it complies with nondiscrimination rules. Here are five questions to help you decide whether your 401(k) plan is the only plan you’ll need for retirement:
What kind of lifestyle do you want to fund in retirement? You’ll find general rules of thumb indicating you'll need anywhere from 70% to over 100% of your preretirement income during retirement. How much you’ll need depends on your individual circumstances. For example, if your mortgage will be paid off and you plan to stay home and watch your grandchildren during retirement, 70% of your preretirement income may be sufficient.
Can you count on from Social Security? Social Security benefits were never designed as the sole source of retirement income, but still they are a valuable source. Those with lower incomes will find that Social Security replaces a higher percentage of their preretirement income than those with higher incomes.
How much does your employer contribute to your 401(k) plan? The $18,500 maximum contribution to your 401(k) plan does not include employer contributions. Employer-matching contributions vary by plan, but a typical match is 50 cents for every dollar contributed up to a maximum of 6% of your pay. However, recently, many employers have reduced or eliminated matching contributions. If your employer offers a match, make sure you take full advantage of it. A generous matching contribution can contribute substantially toward your retirement.
What are average returns on your 401(k) investments? You can only choose from the investments offered by your 401(k) plan. But within those parameters, select those that match the long-term nature of your investments and will help grow your retirement funds over time.
What other sources of income can you count on? If you already have other retirement assets, you might not need to count as heavily on your 401(k) plan. Other potential sources of retirement income might include a defined-benefit pension plan, individual retirement accounts (IRAs), an inheritance, or other investments.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.