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Think Ahead: Manage Your 401(k) Plan Successfully

It’s important to think about your future. Specifically, on how to manage your 401(k) Plan. Elizabeth White, author of 55, UNDEREMPLOYED, AND FAKING NORMAL, shares her advice on how you should think about your finances and future when you want to retire. 

Planning for a secure retirement is much harder than planning for other big purchases, like, let’s say, buying a home. Just think about everything you have to get right to manage your 401(k) plan successfully, and you’ll see why our do-it-yourself pension system is failing millions of Americans.

You’re expected to know what to invest in and to make consistently smart decisions over decades, managing your investments through stock market highs and lows with the right balance of stocks and bonds. Good luck with that! 

You have to make assumptions about how long you will live, because if you die at eighty-seven, you’ll need a lot more cash than if you die at sixty-seven.

 You have to voluntarily save 10 percent—or, as some experts say, 15 to 20 percent—out of each paycheck for forty years despite flat wages and rising expenses. 

You have to work out the financial impact of having children. You have to know how much you will need for emergency savings and plan for Murphy’s law to kick in, the loss of your job, a health-care crisis, and even death. 

You have to resist tapping into your 401(k) savings for other purposes—like to pay for a health-care emergency, to build that deck on your home, or to pay your kids’ college tuition

And when you finally do retire, you have to know how much to draw from your savings. You’ll want to take enough to live on but not so much that the well runs dry.

This is a steep hill to climb, and millions of Americans are not up to the task. The stats on 401(k) savings plans tell the whole story. In a study conducted by the National Institute on Retirement Security, using data from the US Federal Reserve, the median amount in 401(k) savings for all working households was $2,500, factoring in all those zeros for households with no savings at all. For near retirement households age fifty-five to sixty-four, the median account balance was $14,500.1

With life expectancy rates now well into the eighties, there’s no way any of us will survive on that. Sure, there are some people who are very comfortable making retirement savings and investment decisions, and a few will hit it big, but that won’t be the reality for most of us.

Find out more about creating a strategic retirement plan in 55, UNDEREMPLOYED, AND FAKING NORMAL by Elizabeth White

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For more on Tips on Life & Love: How to Rightsize Your Retirement Budget

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Excerpted from 55, UNDEREMPLOYED, AND FAKING NORMAL by Elizabeth WhiteCopyright © 2019 by author. Used by permission of the publisher. All rights reserved.

Photo by Jesse Roberts on Unsplash

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