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Opinion: Starting the conversation to maximize the 401(k)

Industry Insight

Posted online

There are several New Year’s resolutions out there: work out more, become more organized, give up a vice – and the list goes on. But have you considered taking the time and strategizing to maximize your 401(k) benefits? That is my challenge for you.

As you begin to re-evaluate your life, reprioritize and set new goals this new year, don’t forget to take proper care of yourself. Not enough of us are involved in important financial decisions such as how much to contribute to flexible spending accounts or health savings accounts or looking at maximizing our retirement benefits. I urge you to sit down with your partner and make those decisions together as a couple – sharing goals and responsibilities for managing finances, and planning for the long run to better safeguard your future.

A choice
In today’s typical two-earner households, we’re seeing women play a major role in the overall earning power of the family. In fact, a recent Pew Research study shows that in as high as 40 percent of households, women are the top earners.

So then why not take a more active role in the financial planning of your household? You should know how much, why and where your hard-earned money is being invested. Will the plan you’ve invested in maintain your standard of living in retirement? Sit down with your partner and have those tough conversations, and know how much is going toward your 401(k). Because whether you retire together or alone, these decisions affect both of you now.

Shared responsibilities
Taking on financial responsibility does not solely rely on being the breadwinner but rather the willingness to participate and learn together. Determine your risk tolerance, identify goals, consider your needs and develop a plan. Having a solid financial strategy is about making informed decisions. A more collaborative style between partners can lead to wiser, long-term decisions about the best way to allocate funds into your 401(k) or individual retirement account without sacrificing important shorter-term needs.

If your employer matches your 401(k) contribution, make sure you are taking full advantage of what is essentially free money by maximizing the matching amount. You can really add to your ability to invest in your future, as money contributed earlier in your working career will compound over time and be able to go to work for you, making it much easier to be ready for that dream retirement.

Prepare together
Keep revisiting and revising that plan as you grow together to ensure you enter a happy retirement. No matter where you are in life, the best time to start is right now. Partners should sit down together, perhaps with a trusted financial adviser, and have frank discussions about how they are going to allocate benefit resources and find the right investment tools within their own 401(k) accounts or another retirement savings vehicle. 

Although you want to max out your 401(k) withholding for the month, don’t try to dip in because early withdrawals can result in significant taxes and penalties. Instead, consider a separate account called your “emergency fund” for those surprises that spring up, like a broken car window or a busted water heater.

Developing a more collaborative style and increasing transparency sets up a solid road to retirement and, in turn, builds a stronger relationship. It’s never too late to push the restart button to maximize your retirement benefits.

Lisa Jones is a financial adviser with Prime Capital Investment Advisors LLC and the firm’s branch manager in Springfield. She can be reached at ljones@primecap-ia.com.

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