- Are you really planning for retirement?
- Do you know how much monthly income you will have when you retire?
- Would it help if you were a millionaire?
After more than two decades of helping people plan for retirement, we have seen some really good results for our clients. And our Number One piece of advice is – Start Early, and Save Often – use your 401k to your maximum advantage!
When is the best time to start saving?
Right Now! The earlier you start, the better chance you have of having a comfortable retirement.
Should I contribute to my 401k at work?
Absolutely! There are several good reasons:
- Convenient savings through automatic payroll deductions
- Company match is free money
- Tax-deferred contributions and earnings – no taxes until you withdraw the money
- Mississippi does not tax retirement distributions
- Money is not subject to creditors
- Passes to your heirs through beneficiary designations
How much should I contribute?
The best answer is – As much as you can. But, certainly, enough to at least get all the company match that you can. For this year (2019) you can contribute as much as $19,000. In addition, if you are 50 or older you can do an additional catch-up contribution of up to $6,000.
See the following example to see the impact of saving early and saving often, with a company match.
Assume someone is making $60,000 per year, that their federal tax rate is 15% and their State tax rate is 5%. Also, assume that person contributes 10% of their salary ($6,000 per year which is $500 per month). Also, assume the company matches 75% of the 1st $200/month (they match $150). Finally, let’s assume the money is invested so that it gets a return of 6% per year (remember, there is no guarantee that the market will actually return anything, and that you could actually lose money on investments).
Here’s the results at the end of Year 1, then Years 10, 20, 30, & 40:
|Your Contribution ||Company Match ||Return ||Year ||Balance |
|$6,000 ||$1,800 ||6% ||1 ||$8,018.12 |
|$60,000 ||$18,000 ||6% ||10 ||$106,521.58 |
|$120,000 ||$36,000 ||6% ||20 ||$300,326.58 |
|$180,000 ||$54,000 ||6% ||30 ||$652,934.78 |
|$240,000 ||$72,000 ||6% ||40 ||$1,294,468.98 |
When you get ready to retire you may get a pension, or you may not. Social Security may be there for you, but it may not. You do not have control over your pension or your Social Security.
But, you have a lot of control over your savings.
To repeat our earlier advice – Start Early, and Save Often. You could possibly become a millionaire!!
The examples above are illustrative in purpose, and there is no guarantee you will achieve the stated results.
Investment Advisory Services offered through Sound Financial Strategies Group, Inc. ("SFSG"), a Registered Investment Adviser. Certain representatives of SFSG are also Registered Representatives offering securities through APW Capital, Inc., Member FINRA/SIPC, 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866 (800)637-3211. SFSG and APW Capital are separate and unrelated companies.
Posted on Wed, August 21, 2019
by Sound Financial