Why a 401k is not enough.
Remember how a cup of coffee used to cost a dollar? Okay, maybe not a dollar, but inflation is no joke. The cost of living will continue to increase over your lifetime, and what seems like a comfortable “nest egg” today might not stretch as far in 20 to 30 years. Due to this, your 401(k) contributions will have a hard time keeping pace with inflation.
As a financial advisor, it is our responsibility and pleasure to guide you through the labyrinth of financial planning, ensuring your journey toward retirement is smooth and secure. While a 401(k) or 403(b) is an excellent foundation for retirement savings, it might not be enough to sustain you throughout your golden years, especially if you desire to retire before 59 years of age. Withdrawals from your Traditional 401(k) are taxed as ordinary income, which can be a significant consideration when in retirement. Strategic planning with other tax-advantaged accounts can help manage your tax burden more effectively.
As we age, our medical needs tend to increase, and so do the costs associated with them. Even with Medicare, out-of-pocket expenses for healthcare can be significant. Currently, Medicare doesn’t start until age 65, so what happens if you retire at 55? Your 401(k) might not be enough to cover these rising healthcare expenses. We are statistically living longer than previous generations, which is great news. However, a longer life also means more years in retirement. It’s essential to ensure that your retirement savings can support you for 20, 30, or even 40 years post-retirement.
Retirement is not just about surviving, it’s about thriving! Whether you dream of traveling the world, pursuing hobbies, or spending time with family and friends, these activities require funds. A 401(k) might cover the basics but may fall short of supporting your ideal lifestyle.
What’s the solution?
Asset location is key. Let’s look beyond your 401(k) or 403(b) and consider a diversified approach to where and how much you save annually.
Roth IRAs: These offer tax-free growth and tax-free withdrawals in retirement, providing a great complement to your 401k.
Brokerage Investment Accounts: Investing in a taxable brokerage account offers flexibility in retiring earlier than your peers.
Real Estate: Property investments may provide steady rental income and appreciation over time.
Annuities: In rare instances, annuities may provide an income stream, for those that started saving later and need more income stability.
Your financial needs and goals will evolve, just like you evolve. Regular financial reviews and adjustments to your plan ensure that we stay on track, adapting to changes in the economy, tax laws, and your personal needs will help you to lead the life you deserve.
Having a separate short-term fund ensures that unexpected expenses or unexpected layoffs don’t derail your long-term retirement savings.
While your 401(k) or 403(b) is a fantastic starting point, a well-rounded, diversified retirement strategy that incorporates asset location will better prepare you for the future’s uncertainties and opportunities. Ecos Wealth Advisors is here to help guide you through this journey and build a robust plan tailored to your unique circumstances and aspirations. Come in and see us, the coffee is on us!