Last Chance Retirement Account Savings
We’re getting to the end of the year. Have you met your retirement savings goals? One thing you can do before the last couple of pay periods of the year is log in to your 401(k) management site and adjust your contribution rate, UP! I was debating this during the last month, but in the end, I opted to leave our contributions at 15% because that was our original goal, and Tanya wanted to have cash on hand for a few planned expenses we have coming up soon, so I (reluctantly) agreed. I’m the one in our relationship who pushes the envelope on our contributions, and she’s the one staying reserved. We balance each other well in that way, so we keep short- and long-term spending plans in perspective.
Your Goal for the Year
But what about you? Did you stick to the goal you set at the beginning of the year? Maybe today is the day to boost your contributions for the last couple of paychecks of the year. For 401(k), 403(b), TSP, and 457 plans, there are annual contribution limits, and if you’re 50 or older, you can make additional catch-up contributions. You also have breathing room to make your traditional and Roth IRA contributions because those aren’t due until tax day. If you run a business and have 401(k) or SEP IRA employer contributions to make, you have until your business’s tax filing deadline to make those. Personal workplace contributions are often the ones to address before the end of the year, so don’t delay. Go ahead and schedule a call with us if you want to talk through making any moves, and you are unsure what’s best in your situation.
What’s Your Next Savings Move?
You also want to consider your 401(k) contributions for next year. Maybe you need to boost your contribution rate to reach the new annual limit, or maybe you’re not in a place to max out your 401(k) yet, but you have a raise coming, a second income starting this year, or are ready to tighten your budget, and you want to increase your contribution rate by a percentage or two. If you’re out of debt with an emergency fund, 15% of your total household income is a strong target rate to aim for. Over the length of your working life, this rate can set you up for solid years of living with little to no earned income starting in your 60s.
Sometimes, your company 401(k) plan is the best place to do that because it has respectable, low-cost fund options, but sometimes contributing up to your employer match is wisest, and you can use your traditional IRA or Roth IRA to reach the remainder of that 15% target. You might go in that direction if your workplace investment choices are limited, high-cost, or poor-performing. We include helping you evaluate your options as part of our wealth management and financial planning. Gather your latest plan statement, employer matching details, and the available investment options, and contact us today to review your workplace retirement plan.
Is it Time to Rebalance?
The other thing that you can do to maximize your contributions is reassess your allocation, both current and going forward. Maybe it’s time to rebalance because one fund has done well, and the others have been laggards. Rebalancing your portfolio allows you to sell high and buy low – exactly what you want to do to maximize your gains. It could also be time to dial back the risk in your portfolio as you near retirement. Rebalancing accomplishes that too. One nice feature of the 401 (k) plan we use is auto-rebalancing; however, you don’t want to overdo that either, so be aware that once every six to twelve months is usually sufficient. As part of your annual review, we look at how your workplace portfolio has performed and recommend changes if necessary.
A Reprieve from a Tough Decision
If you have student debt, it can be difficult to decide whether you want to contribute to your employer’s retirement plan, at least up to what they are willing to match, or pay off your student loans more aggressively. Some retirement plans allow you to pay down your student debt and still receive your employer’s match, helping you maximize your retirement savings and probably sleep a little better at night. You’ll want to discuss this with whoever runs your 401(k) plan at work because your employer isn’t required to offer this feature. If they don’t, maybe enough co-workers rocking the boat will perk their ears.
As always, we are here to serve you and help you determine the best strategy for your retirement contributions. We want you to achieve success with your savings goals while working, so you can satisfy other goals you have down the road. Maximizing your contributions is a large part of that story.
This commentary reflects the personal opinions, viewpoints, and analyses of The Dala Group, LLC employees providing such comments. It should not be regarded as a description of advisory services provided by The Dala Group, LLC or performance returns of any The Dala Group, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data, or any recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The Dala Group, LLC manages its clients’ accounts using various investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.