If you haven’t noticed, the days where we can count on the government and our employers to take care of us in retirement are coming to an end. Social Security is on unstable financial ground, and its health could worsen as baby boomers retire. Meanwhile, company pension plans have become increasingly rare and are virtually nonexistent for younger Americans in the work place. The bottom line: If you want a comfortable retirement, you have to take the initiative.
For most of us, our 401(k) s will occupy the role that pension plans filled for the previous generation. That fact could be more than a little unnerving. But there’s no reason why you can’t have a financially secure retirement as long as you avoid making some key mistakes.
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Not Investing at All
If you’re not putting money into your 401(k) now, keep in mind that the longer you wait to start making contributions, the more you’ll have to save later in life to meet your retirement goals.
Given the math, it pays to start saving now. At the very least, start contributing enough to take advantage of your employer’s matching contributions and commit to increasing your contribution rate every year. Ideally, you should invest as much as you can. The annual contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan, is $18,000 for 2015, up from $17,500 in 2013 and 2014.
The 401(k) catch-up contribution limit for employees age 50 or older in these plans goes up to $6,000 for 2015, up from $5,500. Even if you don’t turn 50 until Dec. 31, 2015, you can make the additional $6,000 catch-up contribution for the year.
Borrowing from Your 401(k) Plan
Taking a loan from your 401(k) is an example of one of those things that you can do but shouldn’t. By doing so, you’ll make it harder to meet your goals. The money you take out will miss out on the gains it would have benefited from otherwise. There might be some extreme circumstances where borrowing from your 401(k) is your only option, but it should be a very last resort. Please contact one of our Advisors to discuss prior to making such a major decision. We are here to help. Consequences!