Retirement Planning For A Richer Life

retirement planning

Act Like a Company Lifer!

Are you wondering how to build a $1 million retirement plan? There are some great tips out there from people who have done it themselves – without a $1 million paycheck.

This first tip is vital – even if you don’t stay with the same company for your entire career, learning to make the most of your time and 401(k) while there could make a huge difference long term.

Retirement Planning For A Richer Life

The Fidelity 401(k) millionaires have spent an average of 34 years with the same employer. That kind of staying power is nearly unheard-of these days. The average job tenure with the same employer is five years, according to the Bureau of Labor Statistics. Only half of workers over age 55 have logged 10 or more years with the same company. But even if you can’t spend your career at one place—and job switching is often the best way to boost your pay—you can mimic the ways steady employment builds up your retirement plan.

Here’s how to do it:

Consider your 401(k) untouchable.

A fifth of 401(k) savers borrowed against their plan in 2013, according to EBRI. It’s tempting to tap your 401(k) for a big-ticket expense, such as buying a home. Trouble is, you may shortchange your future. According to a Fidelity survey, five years after taking a loan, 40% of 401(k) borrowers were saving less; 15% had stopped altogether. “There are no do-overs in retirement,” says Donna Nadler, a certified financial planner at Capital Management Group in New York.

Even worse is cashing out your 401(k) when you leave your job; that triggers income taxes as well as a 10% penalty if you’re under age 59½. A survey by benefits consultant Aon Hewitt found that 42% of workers who left their jobs in 2011 took their 401(k) in cash. Young workers were even more likely to do so.

Resist the urge to borrow and roll your old plan into your new 401(k) or an IRA when you switch jobs. Or let inertia work in your favor. As long as your 401(k) is worth $5,000 or more, you can leave it behind at your old plan.

Fill in the gaps.

Another problem with switching jobs is that you may have to wait to get into the 401(k). Waiting periods have shrunk: Today two-thirds of plans allow you to enroll in a 401(k) on day one, up from 57% five years ago, according to the Plan Sponsor Council of America. Still, the rest make you cool your heels for three months to a year. Meanwhile, 40% of plans require you to be on the job six months or more before you get matching contributions.

When you face a gap, keep saving, either in a taxable account or in a traditional or Roth IRA (if you qualify). Also, keep in mind that more than 60% of plans don’t allow you to keep the company match until you’ve been on the job for a specific number of years, typically three to five. If you’re close to vesting, sticking around can add thousands to your retirement savings.

Put a price on your benefits.

A generous 401(k) match and friendly vesting can be a lucrative part of your compensation. The match added about $4,600 a year to Fidelity’s 401(k) millionaire accounts. All else being equal, seek out a generous retirement plan when you’re looking for a new job. In the absence of one, negotiate higher pay to make up for the missing match. If you face a long waiting period, ask for a signing bonus.
– via MONEY.com

Work your way up

As nice as it is to have a company behind you who will put money into your retirement alongside you, at the end of the day whether or not you have a reliable nest egg when leaving the corporate world is up to you.

If you focus, spending the necessary time and energy in understanding what you really need and what your goals are, then your retirement planning could pay off huge down the line.

Saving $1 million may not be easy. But for many Americans, it’s not impossible. It does, however, require a focus on current spending and future goals.

Saving $1 million “is certainly doable, but to do it people really need to have clarity on what their goals are,” said Jeff Gorton, a certified financial planner and founder of the Gorton Financial Group in Oklahoma City.

That means thinking long and hard about where your money is going now, whether that’s the best use of your money or whether it makes more sense to stash that money away.

“If you don’t sacrifice some of your lifestyle now, then what you’re really doing is sacrificing your future lifestyle,” Gorton said.

Maybe you can’t contribute the annual maximum of $18,000 ($24,000 if you’re 50 or older) to your 401(k). That’s OK. “Start where you’re at and work your way up,” Gorton said.

Here’s some inspiration for you: Gorton knows a mechanic — an employee in his early 60s – who is currently contributing $24,000 to his 401(k).

That’s half of his salary.

“He is not making a lot of money, but he’s putting in his $24,000,” Gorton said. “He’s been a mechanic for more than 30 years. He’s trying to beef up his retirement as much as he can. Every time he gets a raise, he tries to put at least half of the raise into his 401(k).”
– via MarketWatch

How is your retirement planning coming along? Are you confident that you will retire well, or is it time to make a new game plan?

Leave a Comment