How Important Should a 401k Plan be to Your Retirement?

Using a 401k retirement plan is popular with many different types of investors. How important a 401k plan is to you will depend on a number of different factors. Here are a few things to consider about the importance of 401k plans and how they relate to your retirement goals.

Backup Plan

In some cases, a 401k retirement plan is nothing more than a backup plan for you. Many people expect to make a significant amount of money in a way other than through their retirement account. For example, if they have a very high paying job, they may not be relying on their retirement plan to fund their retirement. However, if this is the case, you should still contribute to a 401k as a backup plan. Many different things could potentially happen between now and the time you retire in order to change your plans. You could lose your job or the company that you work for could go out of business. You might even become disabled and be unable to work. If any of these things were to happen, your standard of living and your hopes for retirement would be negatively affected. By setting aside a portion of your income and putting it into a 401k account, you can make sure that you will be able to retire regardless of what happens in other areas.

Large Retirement Saver

Some people, on the other hand, choose to invest a large percentage of their income into saving for their retirement. This group of people wants to make sure that they have a great retirement and therefore, they are planning ahead. Many people in this category choose to utilize a 401k in conjunction with other types of retirement accounts such as an IRA or a Roth IRA. If this is the case, a 401k will most likely be the key element to their retirement savings. A 401k will allow you to save more money for retirement each year than an IRA or a Roth IRA. With a 401k, you can save as much is $16,500 per year while you can only save $5000 with either type of IRA.

In addition, with a 401k, your employer will be able to contribute to your account as well. In some cases, employers will match your contribution up to a certain percentage. Since they get a tax deduction for contributing to your account, they will most likely do so in order to decrease their taxable income. This could be a significant source of retirement money for you in the long run. Many employers will decide to do a 50% match on whatever their employees contribute up to a certain percentage. Therefore, this is like getting a 50% return on your investment before you even invest anything into the market.

In this case, your 401k would play a vital role in your retirement savings. It will most likely be your largest retirement account by the time you reach retirement age. Therefore, you should place a special emphasis on contributing to it on a regular basis.

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