A 401(k) is a type of retirement account that allows you to save for your golden years. But is it enough to secure your future? We’re going to look at what’s inside a 401(k), and whether or not you should use it as your primary retirement savings tool.
You’ve probably heard many people say that the 401(k) is not enough for retirement. But why? What makes this so? And how can you know if your plan is enough to help you retire with the amount of money you want in your golden years? We review all of those questions and more!
401k Is Not Enough for Retirement
If you’re saving for retirement in a 401k, there’s no question that it’s not enough. You need to save more money. If you’re saving for retirement in a 401k and you’re also contributing to an IRA or another retirement account, then yes—it may be enough if that’s all the savings you have set aside.
Even if your employer matches your contributions up to 6 percent of your salary and even if they offer a 50 percent match on anything over 6 percent (which is rare), it’s still not going to be enough. It might seem like quite a bit at first glance, but when inflation and taxes are taken into account, it pales in comparison with what it would take to retire comfortably or even decently without running out of money before death do us part.
Reasons Your 401(k) Is Not Enough for Retirement
In addition to the challenges of making a sufficient contribution, there are a few other things you should be aware of when considering your retirement planning.
First, inflation and taxes. Inflation is the rate at which economic goods and services become more expensive over time. Taxes are how governments collect citizens’ revenue to operate their programs and projects. Both factors can make it harder for you to maintain your standard of living as you age if your 401(k) isn’t enough for retirement.
Second, fees and compounding costs can cause your 401(k) to perform worse than expected or lose its value entirely.
Thirdly, lack of liquidity means that once you invest in something like real estate or stocks (which many people do with their 401ks), they may be difficult or impossible to sell at short notice—or even when necessary—because nobody wants them!
Talk to an Expert
While a 401(k) may be enough for some people, it’s not necessarily a foolproof solution. If you’re trying to save up for retirement and think a 401(k) might be enough for you, the best thing to do is talk with an expert about how much you need to save—and how to do so.