I’m a Retiree: 4 Things I Wish I Had Known About 401(k)s in My Earlier Years

Retirement concept.
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Retirement — the time to kick back, relax and enjoy the fruits of your labor — is a phase of life many eagerly anticipate, but it also can be a period filled with financial uncertainties.

Once you stop receiving a regular paycheck, meeting your financial obligations becomes all about how much you have saved. Social Security can help, but those benefits alone won’t be enough to fund a secure retirement for most people. 

Many people have access to employer-sponsored retirement plans such as 401(k)s during their working years. These retirement accounts can be powerful tools for building a secure financial future; but, without the right knowledge, you may miss out on opportunities to maximize your savings.

Keep an Eye on Your Investments

One great thing about a 401(k) plan is that saving and investing are largely automated — the money just comes out of your paycheck. The unfortunate downside of automation is that it makes it all too easy to “set it and forget it.” It’s important to check in on your retirement account every so often to make sure you’re sticking to your plans.

When Lynn Toomey retired from her corporate career, she soon wished she had paid closer attention to the actual investments in her 401(k).

“It’s like regularly checking your car’s oil — a little maintenance can prevent bigger problems down the road,” Toomey said. “Staying informed about your investments can make a big difference. [During my career I] just kind of guessed at allocations, with little attention paid to the mix.”

Are You Retirement Ready?

That regret must have been motivating, because Toomey went on to become a retirement coach, founding the platform Her Retirement to help other women plan for their futures. She has since heard many similar stories from retirees and the soon-to-retire.

Watch Out for Fees

Toomey said she has heard many retirees say they wished they had paid more attention to fees. It’s certainly understandable, because most 401(k) plans offer a fairly limited range of investment vehicles. A lot of investors assume the fee structures are more or less the same — if they even think about the fees at all.

“Ah, fees! They can sneak up on you and nibble away at your nest egg,” Toomey said. “It’s like paying extra for the same item at different stores. Keep an eye on those 401(k) fees and choose low-cost investment options whenever possible.

Most plan administrators issue a prospectus on every fund offered, which will include an explanation of any fees. Take the time to read them — even a fraction of a percent can make a huge difference over the course of your career.

The Power of Early Contributions

As a certified financial planner at SoFi, Kendall Meade has heard her share of regrets from clients.

“The No. 1 regret that retiree clients of mine have had is not beginning to contribute to their 401(k) sooner,” she said. “Start saving as soon as possible. Small delays in saving can have a huge impact on your outcome.”

Are You Retirement Ready?

Meade provided a compelling example: Assuming a 7% return and a starting salary of $75,000 with small annual increases, if you contributed 15% each year starting at age 30, your balance at age 50 would be just over $480,000. Not bad.

If you started at age 25, though, that balance goes up to $779,000. Start just three years earlier, at age 22, and by 50 you’d have over $1 million.

The Cost of Lifestyle Creep

In order to save, you have to live below your means. It’s an obvious concept: If you spend everything you earn, there’s nothing left to save. Your means will probably increase over time though. Bonuses, promotions and raises will increase your spending power.

“One of the biggest hindering factors for retirement goals is lifestyle inflation,” Meade said. “This is when your expenses increase as your income grows. This is a double whammy because not only are they not saving, but their expenses are growing, so the lifestyle they are accustomed to will cost more in retirement.”

To avoid this, Meade recommends saving the majority of any raises or bonuses you get. This method can be relatively painless; because, when you are making these changes as they occur in your life, you never get used to having this income to live off of versus having to make budget cuts later, she said.

Learn From the Mistakes of Others

Forewarned is forearmed, as the saying goes. You don’t have to end up with regrets about your 401(k). Learn from the stories of these retirees and take action now to make sure you are getting the most out of your retirement plan.

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