If you want to go the extra mile toward your retirement goals this year, contributing to a 401(k) is something to consider. It’s one of the most prized possessions of many retirement savers.
Unfortunately, many plan participants have no idea if they are getting the most out of their 401(k). This could be dangerous when it comes to retirement planning. You could wake up one day and realize you don’t have enough money tucked away in your 401(k) for you to retire comfortably.
If you have a 401(k) or are considering contributing to one this year, here are a few tips to help you make the most of your account.
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Define your long-term vision
When you’re planning for retirement, it’s important to develop a vision of what you want your life to look like during your golden years. Then you can estimate the costs and determine what steps you should take now to achieve that goal.
Let’s say you want to travel around the world and take on passion projects during retirement. How much would that cost? Once you have your big number, you can determine if you are saving enough money in your 401(k) to help you achieve that goal.
Determine your contribution goals
Now that you’ve developed a vision and identified potential costs, it’s time to think about saving money toward that goal. How much money do you need to save for the next 10, 20, 30, or 40 years?
Before you start your calculations, remember that the 401(k) comes with annual contribution limits. If you haven’t turned age 50 yet, you can contribute up to $20,500 from your pay in 2022. But if you’re 50 or over, you get a special annual catch-up contribution of $6,500, bringing the maximum contribution to $27,000.
Be strategic about your annual contributions. You can contribute the maximum or another amount that makes sense for you. If you’re 35 and want to contribute the maximum, you can tuck away approximately $854 every two weeks to achieve your goal in 12 months. But if you want to fast-track your success, you can choose to contribute a higher amount — say, about $1,500 biweekly — to max out your 401(k) within seven months.
You may not be alone on your 401(k) contribution journey. Your employer may give you extra money if you decide to feed your 401(k). That’s called a matching contribution.
Let’s say your employer agrees to match 50% of your contributions, up to 6% of your salary. Imagine you earn $90,000, and you contribute 6% …….