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How to Make the Most Out of Your 401(k) Throughout Life

by Caldwell Trust

One of the best ways to create a comfortable and enjoyable retirement for yourself is to start saving money early in your life. Fortunately, with a 401(k) plan, reaching your retirement goals can be relatively straightforward, as long as you know how to make the most out of it.


How Much Money Should You Put into Your 401(k) Monthly?

Even though the general guidelines indicate you should put ~20% of your paycheck into your 401(k) or savings accounts, this does not mean that this amount will work for everyone. In reality, there is no one-size-fits-all answer to how much money you need to contribute. Rather, it will all depend on your circumstances.

That is why if you are grappling with this 401(k) amount, figuring out a ratio that factors in savings and spending can help you figure out your perfect contribution amount.

For example, consider the 70/30/10 ratio. This ratio means that you can spend 70% of your paycheck, contribute 20% to your 401(k), and give 10% to charity. However, if you are not at the point in your life where you can consider charitable giving, you can defer that amount and focus on your spending and your 401(k) contributions. Just make sure that, as your financial situation changes throughout your life, that you reevaluate this ratio.

How to Take Matching into that Decision

One rule that will typically apply to almost everyone looking to invest in their 401(k) is if your employer matches your 401(k) funds, you want to contribute enough to get that full match. To benefit from this matching, you will want to make sure you put in enough to max out your employer. It is basically free money, and you need to optimize on this opportunity.

When Should You Start Making Larger Contributions?

It is essential to periodically review your 401(k) contributions and figure out if it is time to increase the amount you put in. However, before you start making substantial contributions, consider the following:

  • Did you max out your emergency savings or have about six months of living expenses saved up?
  • Could you handle small percentage increases to your 401(k) with no issue?
  • Did you pay off your credit card debt? If not, work on that first.

Many people may decide to pause contributions when they need to save money, which is understandable. But, if your employer matches 401(k) contributions, try to put in enough just to get that match. You do not need to put in a penny more. However, putting in the bare minimum can still help you save some money in the process and not waste an excellent retirement opportunity.

The Best Time to Withdraw Your Money

If you are considering cashing out your 401(k) retirement fund, you first need to determine if you will be subject to penalties. The only way to receive this money free of fines is to reach 59. 5 years old, become disabled, or undergo some financial hardship. Otherwise, you will be subject to stiff fees when you cash it in. 

If you want to make the most out of your 401(k) or are looking for additional information regarding saving for your retirement, contact Caldwell Trust Company today.


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