Have You Increased Your 401k Contribution Lately?

Have You Increased Your 401k Contribution Lately?

In 2022, inflation rose by a staggering amount. Currently at 8.6% as of this writing, at least one economic forecast projects inflation could reach 9% before years end. To keep up with rising costs, it may be tempting to lower your 401(k) contributions or stop altogether. But in fact, high inflation means youll need to save more aggressively for your future as purchasing power declines. 

While 401(k) savers have the option of raising deferral amounts periodically, many employees fail to increase their contribution rates over time. Heres why you should consider upping your 401(k) contribution, especially when inflation is on the rise.  

A Small Increase Can Make a Big Difference 

Saving for retirement is a long-term proposition, and small changes to your 401(k) allocations can greatly affect your ability to retire comfortably in the future. For example, according to Fidelity, a 35-year-old earning $60,000 a year can make a significant impact in their retirement savings by the time theyre ready to withdraw with only a 1% increase in their savings rate. In the short term, thats only $12 more per week, which isnt enough for most savers to feel an immediate pinch. However, just that small increase can add up to an additional $85,000 more in the fund by age 67, assuming a return rate of 5.5% and a consistently growing salary.  

While your particular situation may vary, increasing your 401(k) contribution rate now means that these funds have more time to potentially increase in value thanks to the powerful effects of compounding. And having a little bit less in each paycheck now will likely hurt a lot less than not having enough for a comfortable retirement later on.  

Consider Auto-escalation 

Even though the math is undeniable, sometimes it can be hard to get yourself to take the plunge, particularly if youre concerned about rising costs in the near term. To make it easier for employees, some plans offer auto-escalation, in which your 401(k) contributions increase automatically. Typically, these rates increase by 1% each year until federal limits are reached. This is a great option to sign up for if you aren’t already enrolled. And you can always opt out of an increase, so theres no long-term obligation. 

Talk to a Financial Professional 

Raising your 401(k) contributions periodically can help put you in a much better position for retirement, without having to take big hits to your available cash flow at any one time. Instead, you can ramp up gradually, upping your contributions whenever you receive a pay increase or at some set interval.  

When youre ready to begin increasing your allocations, talk to a financial professional to find out how you can best augment and manage your retirement savings. As inflation continues to rise, 401(k) savers who periodically increase their contribution amounts are positioning themselves to be better prepared to maintain buying power at retirement, when theyll likely need it the most.  



Inflation Adjust Your Emergency Fund

Inflation Adjust Your Emergency Fund

Inflation, whether steady or steep, can have a negative impact on your savings if you don’t keep pace with it. This means that while you may be prepared for a financial emergency now, you might not be down the road. And particularly when a recession complicates the picture, padding your emergency account can be a lifesaver. If you have three months of expenses currently saved, try to increase that amount to six. If you have six months in the bank, see if you can sock away nine months’ worth. At the very least, aim to increase your savings by the same percentage as the current inflation rate to help keep you prepared in a climbing interest rate environment.

Though it’s important for investors to be cautious during recessionary conditions, there can be a potential upside when interest rates rise — investors can see higher returns on their savings. For any money you might need to access on a moment’s notice, minimize risk as much as possible while maintaining high liquidity. Here are some types of accounts that can be appropriate for an emergency fund.

High-interest Savings

You can save money in an FDIC insured high-interest savings account to generate a higher interest rate than most traditional savings accounts. And the extra interest you earn could help bridge the gap between your savings and the current inflation rate. You may find the best deals with online high-interest accounts.

Laddered CDs

A laddered CD is when an investor divides a lump sum into multiple CDs that mature at different times, so the investor can receive periodic payouts. Staggering maturity dates may also allow you to take advantage of changing interest rates. This strategy can help lower overall portfolio risk as well, which may be important for something as critical as an emergency fund. 

Money Market Accounts

In exchange for higher interest rates, many money market accounts (MMAs) have minimum deposits of $5,000 or more. They have relatively high liquidity, but the number of transactions per statement period are typically limited (often to around six per month). MMAs also often have debit features that give them more liquidity than CDs or even other savings accounts.

Don’t Compromise Your Future Financial Wellness

No matter which savings strategy you choose, try to avoid dipping into your 401(k) or other retirement account. These are intended to be long-term, non-liquid investments that are meant to mature when you’re ready to retire. The taxes and fees alone for early withdrawals can reduce what’s available to you in the short term to the point where the money might not cover a significant emergency. Plus, those funds can’t be put to work in the market while they’re divested — and you may miss out on valuable growth opportunities if stocks rise. The kind of account that’s best for you depends on your financial situation, so speak with a financial professional before committing to one strategy.




Tips for Minimizing Student Debt

Tips for Minimizing Student Debt

From guidance counselors and parents to your soccer coach and nosy neighbors, everyone seems to be interested in where you’re planning on going to college. And with good reason — there’s a lot to consider when making this important decision, beyond just picking the right university or vocational school and figuring out your major. Education costs money … a lot of it. But with some practical planning, there are ways to rein in college costs even if your college fund hasn’t caught up with your dreams quite yet.

Figure out What You’ve Got to Work With

Have the “money talk” with your parents. Find out if they — or your grandparents — have funds put aside for you like a tax-advantaged 529 college savings plan. If they do, know that the impact on your financial aid is different based on whether your parents or your grandparents started the account. And don’t forget to ask for money toward your college fund for birthday presents and holiday gifts to bolster your savings.

Stretch Your Budget

Rather than going straight to a four-year school, consider spending your first year or two at a community college. Community college can cost much less — plus, you could potentially save on living expenses by commuting. You can then transfer to the school of your dreams in a year or two to dig into your major.

Plan Your Way Out of a Jam

Talk to your college advisor about the feasibility of graduating early. Look into concurrent enrollment programs that allow you to take reduced-cost college classes while in high school. AP testing and CLEP tests can also help you receive credit at a reduced rate and speed up your graduation date. Graduating even one semester early can save you thousands of dollars in tuition, housing and other expenses.

Scholarships Are Free Money

In addition to academic and sports scholarships, there are also community-based, gender and subject area scholarships. Once you’re in college, you can work with your major department or honor society to take advantage of these programs. Look into smaller scholarships as well. Sometimes they’re easier to get, and a lot of small scholarships can add up to more money. And don’t forget about grants if you have financial need. Many states and colleges offer their own need-based grant, research and scholarship programs that you can apply for.

Work-study and Summer Jobs

Instead of taking out more student loans, look for opportunities to participate in federal work-study. These are programs that provide you work during the semester and can help you reduce the need for debt. A summer job can build up your resume and help toward paying your college expenses for the coming year.

Get Ahead of Debt

Make sure you fill out the Free Application for Federal Student Aid each year to take advantage of grants, work-study and some scholarships. Speak with a financial professional to help you take steps now to sidestep serious debt and make your transition into life on your own as smooth as possible.

10 Steps to Making a Budget

10 Steps to Making a Budget

Creating and sticking to a household budget is the cornerstone of a sound personal financial plan. Heres how to make one in 10 simple steps.  

1. Pick a system. Theres no shortage of budgeting apps and online tools available. You can also use a basic electronic spreadsheet or even pen and paper, if you prefer. But whatever your approach, select a convenient and flexible system to capture and categorize your income and expenses over time. 

2. Track current spending. Keep track of everything you buy for a month to have a realistic picture of your spending before you start. It can be surprising how many purchases occur under your radar like that occasional latte, magazine or fast-food lunch.  

3. Log Your Income. Record income from your job and any other sources, like a side hustle building websites or selling handmade jewelry on Etsy. Dont forget to include investment or retirement income as well.  

4. Record Fixed Expenses. These are costs that remain relatively stable over time things like your mortgage, insurance premiums or car payment. 

5. Project Variable Expenses. These change from month to month. They might include things like gas, takeout dinners and clothing purchases. Credit card payments tend to also fall into this category. Look at your average over the two previous months for a ballpark, but always err on the high side when it comes to budgeting for them.  

6. Include Occasional Expenses. Some expenses only come up from time to time. They can be predictable (like your summer vacation) or unpredictable (like a car repair). Either way, its important to budget for expected and unexpected occasional expenses. To do this, take the total estimated cost, divide by 12, and include that amount into your monthly budget. 

7. Emergency Fund Savings. Aim to set aside at least 3-6 monthsworth of expenses in a highly-liquid savings vehicle like an FDIC-insured bank account (some advisors suggest 12 months depending on whether you own a home, are married or have children). Clearly, this can take time to build up, so if you don’t yet have enough saved for a rainy day, budget regular contributions to an emergency fund. 

8. Retirement Savings. Sit down with your financial advisor, who can help you determine how much youll need to save in your 401(k) and other retirement accounts each month to stay on track to achieve your retirement goals. Its important topay yourself firstwhen it comes to funding your future and your budget should reflect this important priority. 

9. Plan for Windfalls. Decide ahead of time what youll do with an increase in pay, tax refund, gift, bonus or other found money. Having a plan reduces the likelihood of an impulse buy. Consider using most of it to bolster your retirement fund or pay down debt. 

10. Monitor and Periodically Re-evaluate. Its important to reexamine your budget regularly and whenever your financial circumstances change. Depending on your situation, that could be quarterly, semi-annually or annually. 

Dont be hard on yourself if it’s difficult to stick to your budget each and every month. You may need to make some adjustments from time to time. The most important thing is to keep trying to meet your spending and saving targets. If you need help determining a realistic budget for your situation, make an appointment with a financial advisor who can assist you. 


Putting off 401(k) Enrollment Could Cost You More Than You Think

Putting off 401(k) Enrollment Could Cost You More Than You Think

You just landed a new job, and there are so many things to do. You have to set up your new workspace (even if its at home), become acquainted with your boss and coworkers and get up to speed on your new responsibilities. And theres the company-sponsored 401(k) you should sign up for.  

It could be tempting to put off investment- and retirement-planning decisions until you settle in. But thats an idea that could cost you more than you might expect, especially if you have a longer time horizon to retirement. 

According to The Motley Fool, a 25-year-old employee making about $47,000 who saves 15% of their income and realizes a 7% annual rate of return would have almost $100,000 more at retirement than another worker with all the same parameters except that they waited until age 26 to begin their contributions.  

So, move signing up for your 401(k) to the top of your to-do list. If the options are a little overwhelming, sit down with a financial advisor who can help you determine your personal risk tolerance and recommend investments accordingly. 

Another option to consider if youre unsure about making investment decisions is electing to contribute to a target date fund (TDF), if your plan offers one. These funds create a mix of investments according to an estimated retirement date.  

The fund automatically adjusts the mix and risk of investments to become more conservative as the target date approaches. A TDF handles much of the decision making for you. However, its still important to monitor the funds performance and periodically check in with your financial advisor to ensure you remain on track to meet your retirement goals. 

You generally want to contribute as much as you can to your 401(k) plan. But at minimum, try to contribute at least enough to earn the maximum company match. 

Companies that offer a whats called a 401(k)matchwill match your retirement contributions either dollar for dollar, up to a certain amount or according to a percentage or formula. You always want to aim for contributing at least enough to receive the maximum possible employer match or you’re leaving free money on the table. 

What you may intend to be a small delay in contributing to your 401(k) can lead to months or years as life gets busy. If this should happen, you can easily miss upswings in the market and opportunities for growth to compound over time. 

Choose to make retirement planning a priority and put yourself first. Your employer-provided financial advisor can be a tremendous resource whether it’s the first time you enroll in a 401(k) plan or your third or fourth time around. And if this isnt your first experience with a 401(k), be sure to discuss the options for any funds remaining in 401(k) accounts from your previous employers as well. 

Dont delay this important decision set up an appointment with your financial advisor today.  


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