Ask a CFP: I’m contributing to my 401(k). Am I doing enough?

Updated : Sep 10, 2019 in Articles

Ask a CFP: I’m contributing to my 401(k). Am I doing enough?


– I’m contributing to my
401(k), am I doing enough? Hi, I’m Rachel Sanborn, Lead
Financial Planner for Ellevest. First, you need to know what you want your retirement to look like so you have an actual
retirement forecast number that fits your lifestyle. For example, you might be planning to downsize your lifestyle
or work part-time, which I see more and more. And that would change your
retirement forecast amount. At Ellevest we ask you a
few questions about you and your finances and
start by recommending a retirement plan aimed to get you to 90% of your pre-retirement income. Then one you have your
number, you look at that to see whether you need to contribute more than you are allowed to contribute to a 401(k) during the year. If you need to save more than that, then you can look at other
retirement savings accounts with tax benefits— like an individual
retirement account or IRA. And then if you need more than that, you can open a brokerage account, which doesn’t have a tax benefit, but can help you save toward retirement. That’s usually the way it goes. But one really important
thing to look out for is the fees inside your
retirement account. If the fees on the investment options in your account are over half a percent, think about doing this instead: One, contribute to your
401(k) just enough to max out any employer match on the account. That’s free money. Two, switch over to your
own IRA and max that out. Three, go back to your 401(k)
and finish maxing it out if you need to, then move
to a brokerage account if you need to set aside even more.

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