LOUISVILLE, Ky. (WAVE) – In 1978, the 401k was born as a retirement savings and investment plan that employers offer employees with tax breaks that help them save.
Most dream of quitting their jobs at some point and enjoying the retirement lifestyle they dreamed of, but don’t know how to meet their retirement goals. Gregg Murset, financial planner and CEO of Busy Kid, said reaching this goal won’t happen by accident and takes work.
“Save, share and spend,” Murset said of what he calls a balanced financial approach. “Every time you earn money, you have to save a little of it. You have to share a little – a charity or a church or something that is close to your heart – and spend the rest.”
Data from the United States Census Bureau shows that at least 79% of working Americans can participate in a 401k, but only 32% of Americans use the employee-sponsored retirement plan. Not everyone who is offered an employer sponsored plan benefits.
“If someone 25 starts setting aside $ 50 a week – or call it $ 200 a month – and does so until age 65 with a 10% growth rate, that’s literally going to be 1.2 million.” dollars, ”Murset said.
“Time is money,” as the cliché says. Those who start saving 10 years later will receive less than half of this potential amount.
“They wait until they’re 35 and start putting the same amount of money aside, that $ 200 or $ 50 a week, they’re going to have $ 450,000,” Murset said.
Saving money can be harmful when people don’t know what they are doing, he said.
“I think that’s why it’s so important to start teaching the next generation,” Murset said. “The first time they hear about a 401k, it’s like when they get their first job.”
A business that matches a 401k at any percentage can mean even more money in a person’s pocket. Many employers offer to match what is put in a 401k up to a certain amount. It’s up to the employer to decide what percentage it will match, but many companies offer dollar-to-dollar matching.
“This matching contribution is free money,” Murset said. “I mean, it’s literally a built-in ROI. If you put 6% of your salary, they will pay 6% of your salary. It’s a 100% return like that.
Contributions to a 401k are pre-tax and a person’s savings grow tax-free if they stay in the plan.
“It automatically comes out of your paycheck,” Murset said. “You don’t have to do anything about it. As you get older you become more conservative, but when you are younger take a little risk and capitalize on those big returns.
The contribution limit on the amount that can be placed in a 401k each year is set by the IRS and is subject to adjustment each year. For 2021, the contribution has been capped at $ 19,500, not including an employer’s contribution to a person’s 401k.
People aged 50 and over may be able to make a catch-up contribution. This is an additional contribution that can be made to a 401k retirement plan to compensate for money that a person may not have been able to contribute to their plan early in their career.
Age also makes a difference in asset allocation. Those who are younger can tolerate a higher level of risk than they can as they approach retirement. Those nearing retirement may have more money to invest, but have less time to recover from losses they might incur.
Murset also said the “earn and burn” philosophy of getting a check and spending the money immediately can be very damaging.
“If they just follow the win and burn philosophy where they make money and burn it as fast as they can, they’ll never make any progress,” he said. “You have to get rid of the win and burn philosophy and use a balanced financial approach. “
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