Planning Cent$
Question:
I’ve got this 401(k) Plan and I’m enrolled – what question(s) should I be asking myself?
Answer:
While this answer is different for each individual, there are three principal questions you should be asking yourself. First, how much do I need at retirement? Second, how much do I need to save? And third, where do I put it?
Starting with the first question, there is the accepted ‘rule’ that you will need 75% of your pre-retirement income to meet your needs at retirement. If your retirement goals include a more active lifestyle you would likely want to increase the 75%. For instance, if you are earning $75,000 the year before you retire, you should plan on an annual income of approximately $56,250. For most people, Social Security will account for 30 – 35% of your retirement income. You can go to the website, to learn roughly what the benefits will be for you (and your spouse). Your 401(k) Plan along with any additional savings and investments will constitute about 40% of your retirement income.
Now that you have some rough guidelines on how much you will need at retirement you can ask yourself the second question. Based on your age now, how long you have until retirement age and how much you currently have saved you can calculate the dollar amount you will want to accumulate while working. An extremely important factor to consider is longevity. Due to a myriad of reasons we are all living longer which increases the risk of outliving our retirement assets. Be sure to consider a good, long life!
Lastly, as you begin or continue your saving process you will need to determine where to put the money which is referred to as asset allocation. For our discussion here, there are three points to consider: one, your risk tolerance; two, what is your time horizon; and three, whether or not you want to manage your allocation yourself or have someone else do it for you. This last point is in fact entirely individual and we encourage you to contact our office for further assistance.
Once, you have answered these three questions we recommend that you review your circumstances every five years. Marriage, children, secondary education – there are a number of factors that influence the financial decisions you make and your ‘master plan’ will require some modifications. Get going and good luck!
Fun Fact:
“44 years ago this week (3/18/68), Wilt Chamberlain of the Philadelphia 76ers had one of the most incredible ‘triple-doubles’ in NBA history. Chamberlain recorded 53 points, 32 rebounds and 14 assists in a single game. Chamberlain made $250,000 during that season.” (NBA; By the Numbers by Michael A. Higley)
If you have a question, please send it to or give us a call at (630) 887-8400. We will answer your question directly and privately. If we believe the question would help other 401(k) Plan participants, you might find it in a future Planning Cent$ bulletin (anonymously, of course).
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