According to the BlackRock Global Investor Pulse Survey, only 11% of 401(k) participants contribute the maximum allowed under the IRS limits.
The biggest fear clients facing retirement have is “am I going to run out of money?” By the time clients get close to retirement it’s too late to do much about, other than delaying retirement, which never seems to be popular advice.
Today’s life expectancy in the US is approaching 80 years for both sexes (CDC website) so why do we think we can support 25 year retirements with only 30 year careers? The answer is we can’t. In order to support a 25 year retirement we need to put away a good portion of our income every year and take advantage of the power of compounding.
Tax advantaged savings plans, like the 401(k), offer the best vehicle for most people to save and invest for retirement.
- The deductions are automatic – You never even have a chance to spend the money because it’s deducted from your paycheck and deposited to your 401(k) account.
- Most plans have an employer match – FREE MONEY! (well not really, you are working for it ) The employer match is a guaranteed return on your investment.
- Tax deferred growth – Compounding and tax deferral is the an unbeatable combination, this means all your money is benefitting from the exponential power of compounding.
We all need to take charge of our own outcome in retirement. In order to have the type of retirement we envision we will need to save and invest on our own behalf to make it a reality. One of the best vehicles to do that is the 401(k), so automatically contribute as much as you can while your working and let the power of compounding work for you, to provide the type of retirement you want.