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Each day brings a new round of headlines to declare how bad we are at saving for retirement. But two recent reports show that we really are trying our best.
According to Fidelity Investments, retirement account balances reached record-high levels last year. Since 2008, 401(k) balances were up 63% and Roth IRA and IRA balances were up 53% thanks to participant contributions, employer matches and investment growth.
Even with that terrific progress, retirement savers are still getting some things wrong. Are you guilty of any of these?
Relying on One Type of Account
Of the nation’s 121 million households, 60% participate in employer-sponsored retirement plans such as a 401(k). But only 32% have both a 401(k) and a Roth IRA/IRA. That means nearly 34 million Americans rely solely on their 401(k) for their retirement savings.
Here’s why that’s a mistake:
Limited 401(k) flexibility – You’re limited to the funds your 401(k) offers, which can keep you from investing in the best funds on the market.
Tax-deferral vs. tax-free – You’ll have to pay income taxes on the withdrawals you make from your 401(k) in retirement. Withdrawals from a Roth IRA are tax-free.
Contribution limits – Roth IRAs and 401(k)s limit the amount you can invest each year, which can keep you from investing the full 15% of your income if you use just one account.
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Put both types of accounts to work for you. Invest in your 401(k) up to the employer match. Then contribute to a Roth IRA until you are investing 15% of your income in good growth stock mutual funds in these tax-advantaged retirement accounts.
Investing Without a Plan
Research consistently shows that less than half of all workers have tried to calculate their retirement needs. Of those who have not, 37% believe they can retire on less than $250,000.
Those who do calculate their retirement needs tend to have higher savings goals and are more likely to feel confident about affording a comfortable retirement. Determining your expenses 30 years into the future is a complicated task, but an experienced investing advisor can help you nail down the details and make sure you’re on track to meet your goal.
Investing Without Help
According to the Employee Benefit Research Institute, only 23% of workers say they’ve consulted an advisor to help them with their retirement plan. This can be a costly mistake since the EBRI also reports that a financial advisor’s advice can lower an investor’s risk of running out of money in retirement by as much as 13%.
In addition to helping you set appropriate goals, an investing advisor will show you how to choose your mutual fund investments, answer your questions, and help you keep your retirement savings plan on track for the long term.
You can find an experienced, trustworthy investing advisor through Dave’s nationwide network of investing Endorsed Local Providers. Find your ELP today!