About half of people responding to a poll by bankrate.com said that they did not increase the rate of their 401(k) contribution this year and were still contributing the same amount as last year. Of these, about a quarter of them said they felt comfortable with the rate they were currently using with another quarter attributing this decision to stagnant of insufficient income. About 30% of respondents actually raised their contribution from last year.
2. Can you contribute too much to a 401(k)?
One school of thought is that putting most of your retirement savings in a 401(k) is a bad move. Why? When it comes time to withdraw, you will end up paying the highest amount of taxes on money withdrawn from a 401(k). Combined with the fact that 401(k) accounts have minimal distribution rates and ever-changing tax laws and it becomes less attractive. There may also be a compounding effect of 401(k) withdrawals raising taxable income to the level that Social Security benefits would also be taxed.
3. What should you consider about housing costs in retirement?
Housing expenses are often the largest expense for seniors in retirement and cutting expenses is key to making retirement more affordable. Seniors are encouraged to pay off their mortgage before retirement or consider moving to a smaller home with fewer property taxes and less costly maintenance and homeowner’s insurance. They may also consider relocating to a more affordable area.
4. Working longer to increase the amount of your Social Security benefits.
Because Social Security benefits are based on wage-indexed earnings, working longer can increase them. Benefits are calculated from your highest 35 years of earnings, no matter how old you were, as long as you paid Social Security taxes. Working past the age of 70 can make a big difference in calculating this figure.
Opinions expressed are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.