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

By Ellevest Team

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.

Disclosures

© 2018 Ellevest, Inc. All Rights Reserved.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Forecasts or projections of investment outcomes are estimates only, based upon numerous assumptions about future capital markets returns and economic factors. As estimates, they are imprecise and hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

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Ellevest Team

The Ellevest team is working to help women reach their financial and professional goals.