Can You Afford a 401K?


This material was prepared for Randy Neumann’s use.

If you are currently working for a company that offers a 401(k) plan and you are not making contributions to the plan, you might be missing out an opportunity to save for retirement and lower your tax burden. At work or on your own, everybody should save something for retirement.


401K Randy Neumann Wealth Management


44% of Americans do not have $400 saved for an emergency expenditure. This indicates that people feel that consistently setting aside money for a retirement plan may seem impossible. Yet if a 401K is a plan that is accessible to you, you might want to learn more about if, and how, it can be part of your overall savings and retirement strategy.

According to a recent Bloomberg news article, 14% of Americans have access to a company-sponsored retirement plan yet only 46% use these plans. Overall, 68% of US workers are still “leaving money on the table” by not putting money into a 401(k) plan or any other retirement accounts that are provided by employers.

Working Your Way towards a 401(k) Plan “Sweet Spot”

Depending on your overall goals and risk tolerance, a good place to start might be to set aside between 10% and 15% of your paycheck to a 401K retirement savings plan. Avid savers sometimes save as much as 23% of their paycheck when their savings are matched by their employers. You can work with your financial planner or advisor to arrive at a suitable figure that factors in various aspects of your financial profile including income, age, your expected retirement age and your expected incomes.

Even with the best planning, various household expenses such as rent, credit card debts, car loans, mortgages and college loans can limit the amount of your 401(k) contribution comfort level. This is where some professional help can go a long way in helping you work toward your financial objectives.

Take Charge of Your Money

If you are working full time, investigate your company’s retirement plan and see how you can use it to maximize your retirement savings. Good information about these plans can help dispel some of the reluctance and fear that impede many from making the first step towards a retirement savings plan. Some, for example, believe that it is not possible to save in a 401(k) and an IRA in the same year. You can, in fact, run parallel retirement savings accounts in the same year.

Have a saving goal in mind and begin budgeting your money prudently. Gain control of your finances and spend your money deliberately. Advertisers have a way of leading us to impulsive purchases. If you are going to spend a significant amount of money on something, make sure it is something that you planned for and which you need.

If you are employed, take advantage of the 401(k) company match while you can. It is free money. Automate your contributions to lessen the feeling of ‘spending’. You will be surprised later on by how much you have accumulated thanks to the compounding effect on savings.

How Can You Afford a 401k Plan:

Employees Living Check to Check: Are you living from paycheck to paycheck? Are you concerned that your current income may not be sufficient for a 401(k) contribution? If your income is limited, then perhaps you can look for solutions in your lifestyle. Which are some of the areas where you can make some sacrifices or slight cuts in expenses? A financial advisor can help you build a budget that can make sense for your income level.

You Have a Small Disposable Income: If you have some disposable income, you might consider making adjustments in your expenses to enable 401(k) contributions. Here, too, you will have to evaluate your lifestyle and expenses. A financial advisor can help by reviewing your retirement goals and risk tolerance.

You are a High Earner: As a high earner, it can be easier for you to set aside a considerable sum for a 401(k).  

To learn more about using a 401K to work toward your financial goals, contact us today.