Ask a CFP® Professional: Is My 401(k) Enough? (Video)

By Rachel Sanborn Lawrence

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% for your pre-retirement income.

Then once 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 taxable investment 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 taxable investment account if you need to set aside even more.

If you’re in your 40s or beyond, and you’re just starting to save for retirement, you might need to get to 20% or more of your income. In many cases, this could be as much as, or beyond, the maximum you’re allowed to contribute to a 401(k) or 403(b) per year.

The good news is that the IRS lets people over age 50 contribute more to their tax-advantaged retirement accounts: the 401(k)s, 403(b)s, and individual retirement accounts, or IRAs.

So then it becomes thinking about at what age you want to retire, and what other costs you can eliminate to get you to that goal.

Important note: This advice is only meant for you if you can deduct IRA contributions when you file your taxes. For single filers who are also covered by a retirement plan at work, that’s if your modified adjusted gross income is $64,000 or less in 2019. If you make more than that, talk to a tax pro about what’s best for you.


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Rachel Sanborn Lawrence

Rachel Sanborn is the Director of Advisory Services at Ellevest and a CFP® Professional. She oversees Ellevest’s coaching teams and works with Ellevest members to help them be the boss of their money.