Few financial topics are discussed as endlessly as retirement savings—and for good reason. Getting it right the first time is the only way to ensure that you have what you need to relax in your post-work years. Beyond the golf course, there are no mulligans past the age of 67. We cannot go back and reinvest our earnings from decades past.
Common wisdom and best savings practices abound to guide us on our road to late-life liberation, but separating the good advice from the bad and the ugly can have us tying ourselves in knots. Our saving opportunities may vary as wildly as the amounts we’re able to squirrel away each month, but there are common sense measures anyone can take to maximize their 401(k).
To make the most of your earning potential throughout the prime of your working years, consider one or several of the following best practices.
Up Your Percentage
Let’s face it: we’re not saving for retirement alone. We have a mortgage, a college fund for the kids, a down payment on that dream vacation home, and a yearly getaway to save for (when we can finally find the time). Even so, that 3%, 7%, or 9% of your monthly income you’re putting away each month may not be enough in the long run.
Popular wisdom varies drastically on the subject, but when it comes to a percentage of monthly or annual income to deposit into your 401(k), most financial experts agree that a figure in the range of 10%-20% is wise. More is always better, of course, but at the end of the day, you can only save what you can spare.
Leave it Alone
There are plenty of occasions where an early withdrawal from a 401(k) may seem sensible. In moments of sudden financial hardship, it’s hard to ignore the money that you’ve already set aside. It can be tempting to contemplate an early withdrawal despite the taxes and penalties you’ll pay. But not every situation requires such a drastic measure.
A good rule of thumb for any early withdrawal situation begins with asking yourself, “Is this a real emergency?” If the condition is genuinely dire and can only be fixed by drawing early, then perhaps it’s worth a thought. But if you have other financing options, or if payment plans are available (even with interest), you may end up saving more by going it alone rather than tapping into your savings.
Carefully Automate Contributions
Regularity and consistency are vital to maximizing your retirement savings. But every month poses its own challenges, and it can be hard to say “no” to that extra infusion directly into a bank account.
By automating your monthly contributions, you remove the guesswork and monthly debate. Decide on a percentage that you can reasonably spare and let the computers do the rest. However, it can be too easy to forget about your automatic contributions after each raise or bonus. Make sure to reevaluate your contribution in the event of a salary raise or windfall.
Saving for retirement and attempting to lose weight have one crucial commonality—they both benefit mightily from setting goals. Declaring that you’ll lose 25lbs by next summer is different than planning on shedding 1lb a week from here on out. In the realm of retirement savings, this translates to knowing how much you need for retirement and breaking that number down into achievable, actionable gestures.
There are countless methods for calculating your ultimate retirement figure. Some are complex, while others are simple. As an illustration of a simple method, multiply your annual income by 12 and use the resulting total as a rough target. The chances are good that your 401(k) institution has a retirement calculator on their website. But as always, your true savings goal is yours to set and aim for.
The important thing is having a hard number in mind and enacting a plan to achieve it.
The Golden Goose
In the real world, there are no golden geese. The closest thing we can manage is working hard and saving as much as possible. Retirement savings don’t have to be a looming specter, though. With a few common sense practices and a little bit of planning and goal setting, we can succeed.
When planning for retirement feels overwhelming, a CPA can offer us the expert guidance we need to develop and maintain a peace of mind throughout our hardest working years. For individuals, small businesses, and family businesses, the details of retirement savings can be complicated to process alone.
The goal, in the end, is a future without the necessity of work. To that end, we remain committed and optimistic!
For more about maximizing your 401(k), Contact Aldridge Borden and Co. today!
You work hard today so that you can relax tomorrow. But while it’s easy to look forward to your retirement years, complacency when saving for the occasion can cost you big in the long run. Don’t leave your most important saving obligations up to chance. For expert guidance and a steady hand, consider a CPA from Aldridge Borden by calling (334) 518-6413 today!