How To Maximize Your 401(k)

Thursday, February 13, 2020 | Leave a comment

By Darrell Bryant

Be honest… How well have you been contributing to your 401(k)?

If you’re like most Americans, you might be a bit embarrassed to answer. In fact, only 13% of Vanguard investors maxed out their 401(k) contributions in 2017. (1) And when you add in the fact that nearly a quarter of American adults don’t even have a retirement account to begin with, you can start to see the problem. (2)

But there are ways to avoid the retirement issues millions of Americans are soon to experience. Topping that list as one of the best ways is to make use of (and hopefully someday maximize) your 401(k), which allows you to take advantage of your employer’s matching program (basically free money), lower your taxable income, and benefit from compound interest.

Here’s how to get started.

Step 1: Determine Your “Doable” Number

The maximum contribution for 2020 is $19,500 (or $26,000 if you’re over age 50). That’s $1,625 per month.

For most people, saving $1,625 per month might seem impossible. But then again, most people don’t start with the maximum right off the bat—they set an achievable goal and work from there.

So, after examining your current financial situation (take-home pay, mortgage, student loans, etc.), how much can you feasibly save? Are there any expenses you could cut back on so you can bump that number up?

The important thing is to challenge yourself and set a specific start date.

Step 2: Take Baby Steps

If you determine your baseline savings goal and make a habit of hitting it each month, you’ll already be ahead of most other Americans.

We recommend writing out the answers to these questions and posting them somewhere that will keep your game plan top of mind.

Step 3: Automate

If you try to rely on memory and self-discipline to save each month, you’re setting yourself up for failure. When you see the money sitting there in your checking account, it’s just too tempting to spend. 

That’s why we always recommend automating the process. Set it up so that your 401(k) contribution is automatically deducted from your paycheck. If it gets deducted before you get paid, you won’t miss it as much.

Step 4: Know When NOT To Contribute

Depending on your situation, there are some instances when it’s not a good idea to max out your 401(k). By working with a financial advisor, you can be sure you’re always contributing the right amounts to the right accounts.

Here at D. Bryant Retirement Strategies, we are determined to help you plan the most efficient way to save your money. If you’d like us to help you put together your own personalized saving plan, call us at (402) 932-2141 or email contact@dbretirement.com.

About Darrell

Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8:00 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.

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(1) https://www.marketwatch.com/story/maxing-out-a-401k-is-surprisingly-rare-but-may-be-easier-than-you-think-2019-03-05

(2) https://www.federalreserve.gov/publications/files/2018-report-economic-well-being-us-households-201905.pdf

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