Once upon a time in America, the average worker could count on their employer to provide a nice retirement income for them in their golden years, in the form of monthly pension payments. Along with a social security check from the government and a pension check from their company, the average worker had it made in the shade, when it came time to retire from the rat race. Add in a debt-free home and life would be pretty sweet with a lifestyle filled with care-free days and fun activities with friends and family. This was the blueprint to financial freedom for the average worker once they left the workforce. This plan worked for a lot of people for many years, as long as you were willing to work hard and stay employed for 25 plus years at the same employer.
Well, that plan is, for the most part, over or at least greatly modified for most workers.
First, the average worker will have between 3 to 5 jobs in a 40 year career and the guaranteed pension plan is essentially non-existent for most workers. The guaranteed pension has gone the way of the VCR and cassette tape players, meaning they are a thing of the past for much of today's work force. Many companies have deemed this retirement plan too expensive to provide to every worker. Instead, the worker is primarily responsible for saving the money they will need in retirement. Putting the weight of retirement saving and security solely on the backs of the workers. This new realty will start to play out in the years to come as more and more baby boomers (those born between 1946-1964) start to reach retirement age.
If you haven't started saving money for retirement there is still time; if you have started saving, keep up the good work. The start of 2018 is a great opportunity to get your retirement saving plan on track. Your employer's 401(k) or 403(b) retirement plan is one of the last, best options available for the average worker as an alternative to a pension plan.
401(k) plans allow workers to contribute a portion of their salary to a savings plan without paying any taxes on the contribution. Your contributions from every paycheck has no federal tax paid on that money. Some companies make an equal match of your contribution. For instance, every dollar you contribute the company will contribute $.50 up to a percentage limit, however, you must stay employed for a set number of years at that employer to receive the match. Remember, ALWAYS contribute to the 401(k) even if the employer has no match. You are saving for your future, all that matters is money is being saved toward your retirement. Taking advantage of this benefit lowers your yearly tax bill, but most importantly it provides an automated savings plan to help you put away money for when it is time for you to retire from the workforce.
The investment options may be a little confusing, but remember the younger you are (under age 50), your primary goal is to invest in mutual funds such as a low cost stock index fund. These funds will be beneficial for the long term growth of your money. Historically, stock funds have been the best investments over time. Make sure you talk to a representative from your 401k provider, they will review the investment options you have in your plan. Always remember to review the fees of each mutual fund, these are the 12b-1 fees. Make sure they are under 1%, this means that 1% of your investment goes to the company. For instance if you have $100,000 in your account the investment company gets $1,000 every year. You want to maximize your investing dollars so watch out for fees. The annual retirement contribution limits for 2018 is $18,500 and an additional $6,000 for workers over the age of 50.
If you don't save your money in the 401(k) plan, you will only have social security to count on when you are in your golden years. According to the Social Security Administration the average social security check is $1,261 a month in November 2017. That will not be enough money to live anything close to a good life in retirement. Saving as little as $45 a week at 6% for 30 years will be just under $200,000. The more you save, the more you will have for retirement. Your savings will determine the lifestyle you will enjoy in retirement. With the proper planning your savings could go along way in providing a comfortable retirement well into your golden years.
The sooner you start to save your money in the 401(k) plan, the more you will have for retirement. Any amount saved will add up over time. If you haven't started saving for retirement, you should start now, it is never too late. It will be worth it in the end.