In a recent Gallup survey, 48% of Americans said they do not think they will have enough money to live comfortably in retirement. How do we combat this problem and thrive in retirement?
We believe the best approach is through proactive saving. Whether your retirement is 45 years away or 15 years away, now is the time to build the foundation for a financially secure future. Here is why a 401k is a good savings vehicle and how to use it to your advantage.
Why You Should Save for the Future
When people think about saving for the future, they often picture trips to dream destinations, pursuing hobbies, and doing things they enjoy. These are good reasons to save, but several practical reasons make saving for retirement vital.
Inflation has averaged 3% over the last 30 years. It’s essential to plan because things will cost more as time goes by. You should also consider where you are saving your money, and if your ROI exceeds the average inflation rate.
Because of modern technology and advancements, men and women live longer lives—a blessing that necessitates more dollars for longer retirements. You’ll want to be able to thrive in retirement and spend time with the people you love. To do this well, you will need to consider providing for many years beyond retirement.
Social Security Isn’t Enough
The average Social Security check in 2020 was $18,036. While not insignificant, this amount is likely insufficient to meet all of your retirement needs. While Social Security will make up a significant part of your retirement income, there are two major reasons why you shouldn’t rely solely on this safety net during retirement: high healthcare costs and uncertainties for the future of the program. Here’s what you need to know.
Having additional sources of income (such as individual retirement accounts (IRAs), a pension, and any investment accounts) can have a significant impact on your retirement!
Want some extra advice on how to save effectively? Schedule a consultation today.
Why Your Employer-Sponsored 401(k) is a Good Place to Save
We’ve established now that it’s vital to save for a financially secure retirement—but what’s the best way to save? Where is it wise to keep your money? We believe your employer-sponsored 401(k) is an excellent choice for many reasons. Here are just a few of the benefits of a 401(k).
1. Automatic Payroll Contributions and Flexibility
You don’t have to worry about writing checks every month or setting up money transfers from several accounts with an employer-sponsored retirement plan. Your contributions are automatically deducted from your paycheck and deposited directly into your 401(k) account for a guaranteed and consistent investment.
Unlike a regular savings account that simply earns interest—at the current interest rate environment, which does not keep up with the pace of inflation–the money in your 401(k) account can be invested, taking advantage of market opportunity and compound interest.
For example, OneAscent Retirement Portfolio Solutions take a target date approach. Target Date portfolios are professionally managed, diversified investment strategies designed to evolve as you near retirement.
Each portfolio’s name typically includes a calendar year, and participants simply choose the portfolio dated nearest their “target year”—the year they plan to retire. The Target Date portfolio’s guidepath shows how the exposure to stocks and other equities decreases over time. This process allows the portfolio to become more conservative as retirement approaches.
Interested in learning more about OneAscent’s Retirement Portfolio Solutions? Contact us!
3. Tax Favorability
Depending on what your plan allows, you could be eligible for a pre-tax and ROTH investment option inside of your 401(k). Depending upon your specific situation, you could potentially take advantage of either or both of these opportunities.
We encourage speaking with a tax or financial professional to find out which is best for you.
If for any reason you decide to change jobs, many employer-sponsored 401(k) plans offer a rollover option to move the balance to your new 401(k) account with your new employer or to an individual retirement account (IRA).
5. Protection from Creditors
Most employer-sponsored 401(k)s are protected from creditors, so creditors cannot seize your funds.
6. Potential Safety Net
While withdrawing money from your 401(k) before retirement is not ideal, certain circumstances such as medical emergencies or sudden deaths may qualify you for the option to take out money from your account, providing a financial safety net for you and your family.
7. Benefit Provided from Your Employer
With an employer-sponsored plan, your employer does the legwork for you, freeing you up from the hassle of navigating the many details and options of 401(k) plans. Your employer sets up the plan, account, and investments so that you don’t have to.
8. Contribution Matching and/or Profit Sharing
Many employers offer profit-sharing options or match a certain amount of your contribution to your 401(k), allowing you to save more money that you don’t even have to earn.
9. Higher Limits
Employer-sponsored 401(k)s often have higher contribution limits than individual retirement accounts, allowing you more freedom to save more money.
10. Lower Cost
Because of volume, most 401(k) plans are typically cheaper and have lower management costs, making them much more cost-efficient options than IRAs. With an employer-sponsored 401(k), you’re able to leverage the contributions of other employees within the company through pooled assets and less expensive share class options within mutual funds.
What’s Different About OneAscent Advising Your 401(k) Plan?
Participants in OneAscent-advised 401(k) plans have access to:
When you invest your money, you become a shareholder or owner. As an owner, it’s important to know how the companies you’re investing in make money.
Most investment options are in mutual funds or other pooled investment products where you might not know what companies you’re invested in. Mutual funds can sometimes feel like a black box. We put money in, not knowing what’s inside, hoping that it kicks out a positive return.
Our technology allows us to remove the top of the box and look at each of the individual companies inside.
We ask all of our participants this question:
What values do you have that you’d never want to violate just to make a profit?
We want to be intentional about discussing your values with you and making sure that your investments are aligned.
Access to a Financial Advisor
Participants in OneAscent 401(k) plans receive quarterly investment commentary, direct access to an investment professional through OneAscent, and proactive communication from their advisor.
Whether you’re an employee or an employer, and whether you’re 35 or 65, we want your 401(k) to give you confidence, clarity, and contentment. Contact us today to speak to an advisor and learn more.