A Sophisticated  Approach to Financial Services

Many Americans are potentially missing out on retirement savings by falling victims to the 401(k) to IRA rollover cash trap.

According to Andy Reed, head of investor behavior research at Vanguard, “IRA cash is a billion-dollar blind spot.”¹

A recent report from Vanguard found that almost two-thirds of rollover investors unintentionally hold cash without investing it.²

Keep reading to see if you may be one of the 401(k) to IRA rollover cash trap victims. 

 

Explaining the 401(k) to IRA Rollover Cash Trap

401(k) rollovers shouldn’t be complicated, but they are.

We’ve written about costly 401(k) rollover mistakes and how to avoid them.

However, another kind of rollover issue affects many Americans without them even knowing it.

This is the 401(k) to IRA rollover cash trap.

When investors roll over their 401(k) to an IRA, either because they are changing jobs or retiring, they may unintentionally allow the rollover assets to park as cash for months and sometimes years.

This is called “holding cash” or “parking cash.”

The problem is that investors aren’t holding cash on purpose – they simply do not know that rollovers are held in cash as a default.

Andy Reed, head of investor behavior research at Vanguard, explains, “Many IRA holders want to invest their retirement savings in the stock market and think that they’re invested following a rollover. In reality, they’re sitting in money market funds.”³

Vanguard found, “Close to 50% of those investors mistakenly believed that IRA contributions were automatically invested and 46% did not realize their contributions were allocated to money market funds by default.”⁴

This is especially true for those enrolled in target-date funds who mistakenly assumed that once they rolled over their 401(k) to an IRA, it would work the same way.

The critical difference is that the investor must decide to move the cash and invest.

But most don’t understand this to be true.

Vanguard found that 68% don’t realize how their assets are invested and are not intentionally holding cash.⁵

For example, “About 48% of people (incorrectly) believed their rollover was automatically invested.”⁶

You must take steps to ensure your cash doesn’t stay parked and, instead, is giving opportunities to move and grow.

 

Why Holding Cash May Not Be the Right Choice for Investors

There is a right time for holding cash – but retirement isn’t it.

Generally, holding cash is a good idea when you are saving money for something in the immediate future, such as a down payment on a home. Or to have in your emergency fund.

But, if you have a substantial amount of cash you want to use in retirement, it should be invested.

The interest accrued on cash savings will be much more limited than if it were invested.

Global Asset Management produced a hidden cash cost analysis over a 20-year period.

According to their data, to reach a $500,000 savings goal:

• If you invest in a balanced portfolio, you would need to contribute $305,000 over 20 years ($15,250 per year).
• If you keep your money in cash, you would need to save $431,000 over 20 years ($21,550 per year).
• The hidden cost of cash is $126,000 ($6,300 per year). This is because your cash investments don’t offer nearly as much growth potential as the balanced portfolio. So if you want to save $500,000 over the same time period, you would have to make larger contributions.⁷

The return on cash is simply too small when you are looking at long-term finances.

 

It’s An Easy Mistake to Make

The 401(k) to IRA rollover cash trap is an easy mistake to make.

According to Vanguard, “It tends to be an error of omission rather than commission: They are twice as likely to hold cash unintentionally as they are to do so deliberately.”⁸

Investors simply forget and do not move the money from its parking spot to the right investment allocation.

Even those who have dutifully saved for retirement may not even be aware that they have rollover assets holding in cash. 

On the other hand, some investors are simply overwhelmed by the number of IRA investment options.

Vanguard explains, “While 401(k) plans typically offer a limited menu of funds handpicked by plan sponsors, IRAs offer thousands of choices among funds, individual stocks, bonds, certificates of deposit, and other asset classes. That plethora of choices can be unwelcome: One in four rollover cash investors reported feeling overwhelmed by the number of options.”⁹

This results in choice overload and decision paralysis.

 

How to Avoid the 401(k) to IRA Rollover Cash Trap

Staying in cash can result in missed opportunities to earn investment returns, potentially leading to retirement shortfalls.

To avoid this mistake, investors should closely examine their portfolios after a rollover to ensure they are allocated appropriately for their long-term plans.

It is critical to stay engaged with your retirement accounts. 

Be an active investor.

Regularly review and adjust IRA allocations based on your retirement goals and risk tolerance to ensure long-term success.

 

Seek Help Before You Make a Rollover Mistake

Understanding all rollovers before you make a move is important, and seeking professional help is just as important. 

Speak with a financial advisor to learn about the differences between 401(k) plans and IRAs, particularly regarding automatic investments. 

Ask for guidance when it comes to making decisions about what to do with the cash from a 401(k) to an IRA rollover. 

Each investor’s situation is unique, and speaking with someone may help you avoid costly 401(k) rollover mistakes and make the best decision possible for your financial future.

 

Have questions about rolling over your 401(k)? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

Book a Strategy Session

 

Sources: 

1. https://www.cnbc.com/2024/09/16/401k-ira-retirement-rollovers-cash-investments.html
2. https://www.cnbc.com/2024/09/16/401k-ira-retirement-rollovers-cash-investments.html
3. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/out-sight-out-market-ira-cash-drag.html
4. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/out-sight-out-market-ira-cash-drag.html
5. https://www.cnbc.com/2024/09/16/401k-ira-retirement-rollovers-cash-investments.html
6. https://www.cnbc.com/2024/09/16/401k-ira-retirement-rollovers-cash-investments.html
7. https://www.rbcgam.com/en/ca/learn-plan/investment-basics/the-hidden-cost-of-too-much-cash/detail
8. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/out-sight-out-market-ira-cash-drag.html
9. https://corporate.vanguard.com/content/corporatesite/us/en/corp/articles/out-sight-out-market-ira-cash-drag.html

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If you are nearing retirement and have less savings than expected, you are not alone.

Many Americans feel the same way.

The 2023 Protected Retirement Income and Planning (PRIP) study from the Alliance for Lifetime Income found: 

• 51% of consumers between 45 and 75 feel they do not have enough retirement savings to last their lifetime.
• 32% are not confident they will have enough money in retirement to cover basic monthly expenses.
• 44% are retired currently or retired previously and have gone back to work.¹

The sad truth is many retirees have less savings than expected.

According to a survey by Clever, “The median retiree has $142,500 in savings – 4x less than the recommended minimum for starting retirement ($572,000). […] 25% of retirees have nothing saved for retirement.”²

Retirement costs continue to rise.

Don’t lose hope if you are nearing retirement with less savings than expected.

Here are some steps to take that may help you get back on track.

Assess Your Current Financial Situation

The first step is to take an honest look at your current financial situation.

Review your savings, assets, and income streams.

Factor in Social Security and pension plan (if you are one of the lucky few who still has one).

Note – Some Americans think Social Security will provide enough for them to retire securely. This is a mistake. Social Security isn’t designed to cover the bulk of your retirement income.

According to the Social Security Administration, “For someone with average earnings who retires in 2024 at age 65, Social Security benefits replace about 39 percent of past earnings.”³

Now, consider your retirement needs and goals.

What is the gap between what you have versus what you need or want?

Be realistic.

[Related Read: 401(k) Balance by Age: How Do You Measure Up?]

Adjust Your Retirement Expectations

Now that you have a clear understanding of where you stand financially, you may have to adjust your retirement expectations.

To save more money and get more Social Security benefits, do you need to push back your retirement date?  

As much as you may want to retire today, it may be financially wise to put it off for a few more years.

You may consider working part-time in your retirement years to ensure you have enough to cover your retirement needs.

Maximize Contributions and Catch-Up Options

If you have less savings than expected as you approach retirement, make every effort to boost your contributions. 

Make sure you are contributing enough to receive the employee match. And then contribute even more!

Additionally, as you are reaching retirement, you want to take advantage of catch-up contributions. 

Employees with 401(k)s, 403(b)s, most 457 plans, and federal Thrift Savings Plans can contribute up to $23,000 in 2024.

For those ages 50 and older, the 401(k) catch-up contribution remains at $7,500 for 2024 – for a total of $30,500.

Reduce Living Expenses

To live with more in the future, live with less today.

Cut unnecessary expenses. Take all the money you save and put it toward your retirement savings.

Some people will make up for the loss by cutting expenses, but others will need to make more significant changes, such as downsizing a home or trading in a newer vehicle for an older one.

You may even want to consider relocating.

The cost of living during retirement varies significantly from state to state.

A study from Go Banking Rates calculated the annual living costs for retirees in each state in the United States. 

The state where your $1 million 401(k) savings will last the longest is Mississippi (22 years, 8 months, 12 days).⁴ 

You may need to consider moving to one of the states where your retirement savings will last longer.

See how long your savings will last in the rest of the states here.

Explore Additional Income Streams

If you have less savings than expected as you approach retirement, explore additional income streams that may help further increase your retirement savings.

Look into part-time jobs, freelance work, or monetizing your hobbies to boost retirement savings before and during retirement.

Another option is to look for real estate investment opportunities or rental income to supplement your income during your retirement years.

Reevaluate Your Investment Strategy

If you are behind on savings, it’s crucial to reevaluate your investment strategy.

For example, you may need to make some aggressive moves to boost your savings, but at the same time, you don’t want to risk too much.

The goal is to preserve your wealth while still generating returns.

This isn’t easy to do without financial knowledge.

For this reason, it is recommended that you consult a financial advisor for guidance.

[Related Read: Is Professional 401(k) Account Management Really Worth It?]

Plan for Healthcare Costs

Medical expenses are one of the costliest expenses during the retirement years.

Fidelity Investments 22nd annual Retiree Health Care Cost Estimate in 2023 found, “A 65-year-old retiring this year can expect to spend an average of $157,500 in health care and medical expenses throughout retirement [or $315,000 for a couple].”⁵

Additionally, according to Merrill, “Someone turning 65 today has a nearly 70% chance of requiring some type of long-term care during their lifetime. […] A private room in a nursing home can cost upward of $100,000 per year.”⁶

Now is the time to consider health insurance options like Medicare and supplemental plans to start building an emergency fund for unforeseen medical expenses.

Get Help

A professional advisor can provide personalized advice tailored to your financial situation, helping to optimize your 401(k) performance so you can catch up and boost your savings.

401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance. 

With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are managing your 401(k) for you.

Have questions about rolling over your 401(k)? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

Book a Strategy Session

SOURCES

1. https://www.foxbusiness.com/markets/inside-americas-retirement-income-crisis
2. https://listwithclever.com/research/retirement-statistics-2024/#crisis
3. https://www.cbpp.org/research/social-security/top-ten-facts-about-social-security
4. https://www.gobankingrates.com/retirement/planning/how-long-million-last-retirement-state/
5. https://newsroom.fidelity.com/pressreleases/fidelity–releases-2023-retiree-health-care-cost-estimate–for-the-first-time-in-nearly-a-decade–re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c
6. https://www.ml.com/articles/healthcare-in-retirement.html

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On October 10, the new Social Security COLA increase was announced, and many retirees were disappointed.

Each year, there is a cost-of-living adjustment (COLA), which is determined by a measurement of the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers.

The 2025 Social Security COLA increase is merely 2.5%.¹

This minimal increase means “retired workers’ Social Security checks will grow by around $48 a month, going from an average of $1,920 to $1,968.”²

Given the inflation Americans have dealt with over the last few years, retirees were hoping for more than a 2.5% increase, which is technically the lowest COLA increase since 2021. 

Read on to learn more about why Social Security is not designed to cover retirement and how to potentially boost your retirement savings.

The Reality: Why the COLA Increase Isn’t Enough

Many retirees were hopeful for a more considerable COLA increase, considering inflation.

Unfortunately, while COLA aims to offset inflation, it lags due to delays in calculation.

For example, the annual COLA increase is determined by the Consumer Price Index, but many argue that this isn’t a fair index.

According to Drew Powers, the founder of Illinois-based Powers Financial Group, “The problem has always been that the CPI-U [Consumer Price Index for All Urban Consumers] and CPI-W have never been the ideal measure of senior citizen spending. When the COLA figure doesn’t match reality, our senior citizens suffer.”³

Moreover, the CPI numbers don’t adequately represent today’s expenses for elderly Americans. 

Michael Ryan, a finance expert, suggests, “The inadequacy of the current COLA system isn’t just about numbers. As someone who’s worked with retirees for decades, I believe we need serious reform,” Ryan said. “The CPI-E (Elder Price Index) would better reflect seniors’ actual expenses, though it would require careful implementation to maintain program sustainability.”⁴

Approximately $50 extra is not going to provide much help to those who are struggling to cover basic necessities – let alone cover the high costs of medical care.

Moreover, the 2.5% increase is significantly less than the more generous 8.7% COLA from 2023 and the modest 3.2% in 2024.

The Risk: Social Security Alone Isn’t Enough for Retirement

Ultimately, Social Security was not designed to cover retirement. 

Social Security was designed to supplement, not replace, retirement income.

According to the Social Security Administration: Understand the Benefits, “But Social Security was never meant to be the only source of income for people when they retire. Social Security replaces a percentage of a worker’s pre-retirement income based on your lifetime earnings. The amount of your average earnings that Social Security retirement benefits replaces depends on your earnings and when you choose to start benefits. […] Most financial advisers say you will need about 70 to 80% of pre-retirement income to live comfortably in retirement, including your Social Security benefits, investments, and personal savings.”⁵

Even so, 40% of older Americans rely solely on Social Security for retirement income.⁶

However, even those with 401(k) savings are worried about the minimal increase in Social Security COLA. 

The Senior Citizens League (TSCL) found that “70 percent [of Americans] said they worry that persistently high inflation prices will cause them to raise their spending and risk depleting their retirement savings and other assets.”⁷

Additionally, TSCL reports, “Our research shows that 67 percent of seniors depend on Social Security for more than half their income and that 62 percent worry their retirement income won’t even cover essentials like groceries and medical bills.”⁸

Rather than become reliant on unpredictable future Social Security cost-of-living adjustments, take action to boost your retirement savings today.

Actionable Tips: How to Potentially Boost Retirement Savings Now

• Max out retirement contributions. Do all you can to contribute all you are allowed to contribute. If you are 50 or older, you can take advantage of catch-up contributions, which allow you to contribute more than the 2024 limit of $23,000. For those ages 50 and older, the 401(k) catch-up contribution is $7,500, for a total of $30,500.

• Get the employer match. Many employers match a percentage of employee contributions to their 401(k) up to a certain portion of the total salary. However, some match employee contributions up to a certain dollar amount. Make sure you are contributing enough to get this free money.

[See More: 4 Ways to Potentially Maximize Your 401(k) Company Match]

• • Rebalance your account. Unmanaged allocations may experience larger losses because of down markets. In contrast, they may miss out on growth opportunities during good markets. For this reason, experts recommend rebalancing your 401(k) account regularly. This is one of the easiest ways to boost 401(k) savings.
    
    [Related Read: What Every Investor Needs to Know about Rebalancing a 401(k)]
  • Don’t borrow or take early withdrawals. Even if you are tempted, avoid pulling funds from your 401(k). Whether you withdraw or take a 401(k) loan, your future will be penalized. Both have consequences for your financial future – mainly preventing your retirement savings from growing tax-deferred.

• Cut Unnecessary Expenses. Cut unnecessary expenses today, take all the money you’ve saved, and put it toward your retirement savings. Choose the less expensive option when given a choice. Make wise financial choices today to protect your retirement future.

• Create Additional Income Streams. Look for opportunities for additional income streams, such as freelance work, part-time jobs, or real estate investments. Every little bit helps.
  
  [Related Read: Close the Gap on Financial Goals with a Side Hustle]

• Consider Delaying Social Security Benefits. It may be financially wiser for you to put retirement on hold. The age at which you stop working affects how much you earn from Social Security. Additionally, the longer you work, the longer your 401(k) has to grow.

Get Help. If you are worried you may be depending on Social Security a little too much, seek help from an expert. They can help you determine what you need to do to improve your annual 401(k) account performance so that you don’t have to rely on Social Security. 

Have questions about your 401(k)? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

Book a Strategy Session

SOURCES

1. https://faq.ssa.gov/en-us/Topic/article/KA-01951
2. https://www.newsweek.com/social-security-cola-2025-increase-sparks-backlash-1967146
3. https://www.newsweek.com/social-security-cola-2025-increase-sparks-backlash-1967146
4. https://www.newsweek.com/social-security-cola-2025-increase-sparks-backlash-1967146
5. https://www.ssa.gov/pubs/EN-05-10024.pdf
6. https://www.nirsonline.org/2020/01/new-report-40-of-older-americans-rely-solely-on-social-security-for-retirement-income/
7. https://seniorsleague.org/2025-cola/
8. https://seniorsleague.org/2025-cola/

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In today’s dynamic job market, it’s not uncommon for people to change jobs several times throughout their careers. 

With each job transition comes a new set of considerations, especially when it comes to your 401(k).

So, what do you do with your 401(k) when you change jobs?

If you have been taking advantage of your employer’s retirement plan, there are a few things you need to consider about your 401(k) before you change jobs. 

#1 You May Not Be Able to Take All of Your 401(k) Savings with You

Before quitting your job and starting a new one, understand that you may not be able to take all of your 401(k) savings with you. 

It all comes down to your plan’s vesting schedule. 

If you leave your job before you are fully vested, you may lose out on the employee match you worked so hard for. 

Vesting means ownership, and while you own what you contribute, the amount of employer matching contributions you can take with you depends on the vesting schedule. 

Some employees are immediately vested, while others must stay with the company for a certain period before owning the employer match contributions.

[Related Read: Why the Vesting Schedule Is More Important Now Than Ever Before]

#2 Don’t Cash It Out

This is a costly option we advise against because you will face penalties and pay taxes for cashing out before age 59½. 

If your 401(k) balance is low, your company may send you a check when you leave your current job.  

This is referred to as an indirect 401(k) rollover – and if you do NOT follow the guidelines, you may end up losing a chunk of your savings. 

Here’s how this works… 

20% taxes are withheld from every indirect rollover – whether you plan to roll over the funds or use the money to pay off debt or make a purchase.

The IRS mandates that your 401(k) custodian withhold this amount – so you get a check mailed to you, minus the 20% taxes. 

After you receive the check, you are required to put those funds – along with the missing 20% – in a new retirement account within 60 days.

You will be able to recover the withheld taxes when you file your tax return, but to complete the rollover, you need to produce that extra cash.

If you fail to do so by the 60-day deadline, your distribution will be taxed as ordinary income and subject to a 10% early withdrawal penalty if you are under the age of 59½.

This means, if you miss the 60-day deadline or decide to cash the check, you may be forced to pay a 10% penalty in addition to the 20% tax.

Let’s say you do an indirect rollover of your $10,000 total 401(k) balance before age 59½ – and you miss the 60-day deadline to roll over your funds. You will have 20% withheld in taxes along with a 10% penalty for early withdrawal. 

This means that you might only keep $7,000 of your original $10,000 401(k) balance – depending on your tax bracket.

You will face steep penalties if you cash out your 401(k) instead of rolling over the money.

[Related Read: Avoid These 4 Irreversible and Costly 401(k) Rollover Mistakes]

#3 You May Have to Pay Penalties

We already mentioned indirect rollovers, but there is another type – direct.

A 401(k) direct rollover is when the transaction occurs directly between the custodian of your old 401(k) plan and the custodian of your new 401(k) or IRA. 

You never actually receive the funds yourself or have control of them, so a trustee-to-trustee transfer is not treated as a taxable distribution. 

You can roll over your old 401(k) directly into your new 401(k), IRA, Roth IRA, or annuity.

There are no penalties or taxes that must be paid with a direct 401(k) rollover. 

In contrast, an indirect rollover puts you in charge. Your former company will send you a distribution check, which you are required to deposit into your new 401(k) plan or IRA.

Again, you are required to put those funds in a new retirement account within 60 days.

And, unlike the direct rollover, 20% taxes are withheld from every indirect rollover.

If you fail to put the funds in a new retirement account by the 60-day deadline, your distribution check will be taxed as ordinary income and subject to a 10% early withdrawal penalty if you are under the age of 59½.

[Related Read: The #1 401(k) Rollover Mistake – Avoid This at All Costs]

#4 You May Not Want to Roll It Over

If you roll over too soon, it may not be in your best interest.

Especially if you are 55 or older. 

If you wait to roll over your money and leave it in your 401(k), you may be able to avoid penalties with the “over 55 rule.”

The “over 55 rule” states that if you are 55 years old or older during the calendar year when you leave your job, you are allowed to take penalty-free withdrawals from the 401(k) plan.

While you will still have to pay taxes on the withdrawals, you won’t have to pay penalties.

#5 Get Professional Help

It’s always a smart idea to seek wise counsel regarding changing jobs.

The same is true when it comes to changing retirement accounts.

Before you make any big decisions that will affect your financial future, speak with a financial advisor.

You don’t want to miss out on employer matching contributions because you misunderstand the vesting schedule or make a costly rollover mistake that hurts your retirement fund.

Consult with the experts to make the best decision for your financial future.

Have questions about rolling over your 401(k)? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

Book a Strategy Session

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According to Vanguard’s 2024 How America Saves Report, the average 401(k) balance for participants in 2023 was $134,128, with a median balance of $35,286. Vanguard participants’ average account balances increased by 19% since year-end 2022.¹

How does your 401(k) balance compare to others in your age group?  

In this post, we break down the latest data from Vanguard so you have a better idea of how much to save for retirement.

Average vs. Median 401(k) Balances

Before we go through the 401(k) balance by age, it’s important to distinguish between the two sets of figures that will be presented for each age group: average and median.

The average balance is the sum of all the balances divided by the numbers in the set. This means all the different 401(k) balances in that age group are added together and divided by the number of accounts included.

The average 401(k) balance by age group includes adding those who have saved the most and those who have saved the least and dividing this sum.

For example, there are currently more 401(k) millionaires than ever before, but at the same time, “more than half of American workers feel behind on their retirement savings.”²

In contrast, the median 401(k) balance by age represents the middle value, with half of the people in the age group having less and half having more.

When you look at the median 401(k) balance by age, half of the people in that age group have less than this amount saved in their 401(k), and half of those have more.

Here is the 401(k) balance by age group as reported in Vanguard’s 2024 How America Saves Report.³

25 and Younger

This age group is composed of those just starting out in their careers.

• Average 401(k) balance: $7,351
• Median 401(k) balance: $2,816

Ideally, you will start saving for retirement as soon as you enter the career world and are offered an employer-sponsored retirement plan.

26 – 34 Years Old

Those in this age group have had more time to save for retirement. 

Notice that the average is twice the median balance.

This is a clear indication of those who have earned more and saved more in their 401(k) plan.

• Average 401(k) balance: $37,557
• Median 401(k) balance: $14,933

Rather than comparing yourself to these numbers, focus on yourself and your personal retirement goals.

Experts recommend that by age 30, you should have saved the equivalent of one year’s salary. 

What is your salary? Let’s say it is $45,000. Your 401(k) balance by age 30 should be $45,000.

35 – 44 Years Old

During these years, you likely have more financial obligations, such as taking care of your children.

It is tempting to put retirement savings on the back burner to pay for other things during this life season, but you don’t want to give in.

You’ll regret saving less as you approach retirement age and discover you don’t have enough to retire.

• Average 401(k) balance: $91,281
• Median 401(k) balance: $35,537

Experts recommend that by age 40, you should have three times your salary saved up.

Using our previous salary of $45,000, this means you should have $135,000 saved.

45 – 54 Years Old

During this life season, you may be earning more than ever before.

If this is the case, try boosting your 401(k) contributions. Once you hit 50 years of age, you can also take advantage of catch-up contributions of up to $7,500.

This is the time when you should really start focusing on boosting your contributions.

Here is the recent 401(k) balance for this age group.

• Average 401(k) balance: $168,646
• Median 401(k) balance: $60,763

Keep in mind that experts recommend you should have six times your current salary by age 50. 

If you make $45,000 a year, this means your 401(k) balance should be $270,000.

55 – 64 Years Old

The group close to retirement or in retirement should have a 401(k) account that is ready to do the work for them.

Experts recommend that by age 60, you should have eight times your salary. 

For those making $45,000 a year, this means $360,000 in savings.

Let’s look at the current numbers.

• Average 401(k) balance: $244,750
• Median 401(k) balance: $87,571

With $244,750 being the average 401(k) balance, it means that many 401(k) savers have saved significantly more than $244,750.

How Much You Need to Retire

While comparing your 401(k) balance to others is informative, it’s essential to consider your unique needs and the rising cost of living and healthcare expenses.

Fidelity Investments estimates that a 65-year-old retiring in 2023 can expect to spend an average of $157,500 on healthcare and medical expenses throughout retirement, or $315,000 for a couple.⁴

Sadly, many retirees have not saved enough money to last through their retirement years, forcing them to go back to work or rely on aid from others. 

Take a look at the real cost of retirement to see how much you actually need to save.

Speak to a Professional about Catching Up

If you look at these 401(k) balances and are worried about how you measure up, consider seeking the help of a professional. 

They can provide personalized advice tailored to your financial situation, helping to optimize your 401(k) performance so you can catch up and boost your savings.

401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that are hurting your retirement account performance. 

With 401(k) Maneuver, you can go about your life doing what you love with confidence, knowing we are managing your 401(k) for you.

Be sure to ask for 401(k) Maneuver at work to get personalized help with your 401(k) account

SOURCES

1. https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2024/has/how_america_saves_report_2024.pdf
2. https://www.bankrate.com/retirement/retirement-savings-survey/
3. https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2024/has/how_america_saves_report_2024.pdf
4. https://newsroom.fidelity.com/pressreleases/fidelity–releases-2023-retiree-health-care-cost-estimate–for-the-first-time-in-nearly-a-decade–re/s/b826bf3a-29dc-477c-ad65-3ede88606d1c

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401(k) account management is an option for anyone with a 401(k) – no matter how close or far you are from retirement.

Even if you have some basic investment knowledge, you might want to consider seeking expert advice.

Think of it this way – financial advisors manage 401(k) accounts for a living. It’s their job. 

It’s not something they do when they have time, which is often what individuals who self-manage their 401(k) accounts tend to do.

However, not all professional 401(k) account management companies are created equal. 

In this post, we hope to clarify the types and show how having someone manage your 401(k) may help you have more money during retirement.

Professional 401(k) Account Management Should Be Personalized

With the rise of AI and the IoT, we are seeing more robo financial advisors popping up.

Robo advisor managed accounts mean an investment service selects a group of funds and packages them in an investment portfolio for you. 

There is little personalization. Many only rebalance annually, and personal risk tolerance is rarely considered.

In contrast, a personalized, professional managed account means your 401(k) is personally managed by a person or team – not a robot.

Personalization occurs using the investment options that are offered, and a personalized strategy – tailored to your unique situation and risk tolerance – is designed using the full menu of investment options in your 401(k) plan. 

When you have professionals personally managing your 401(k), like we do at 401(k) Maneuver, the focus is on the outcome, not a one-size-fits-all algorithm based on your retirement date.

That’s why looking for 401(k) account management done by real people is so important.

At 401(k) Maneuver, we are a fiduciary, which means we are obligated to act in your best interest to improve your account performance. You aren’t merely a number in a computer program.

The Benefits of Professional 401(k) Account Management

Some people ask, “Why invest in professional 401(k) account management when you can do it yourself?”

There are many reasons why. 

Professional 401(k) account management may help you stay on course to meet your retirement goals and lead to a brighter retirement future. 

Here’s how…

#1 Keep More Money

Professional 401(k) management help has been shown to lead to less dispersion (due to fewer risks).

Vanguard’s How America Saves 2024 Report states, “Participants with managed allocations—notably target-date funds and managed account advisory services—had less dispersion in outcomes. […] For managed account participants, the 5th-to-95th percentile differences were 5.4 percentage points. […] By comparison, among all other participants, realized returns for those making their own choices ranged from 2.1% per year for the 5th percentile to 14.7% for the 95th percentile, a difference of 12.6 percentage points.”¹

In addition, those with managed accounts tend to save more money in the first place.

Edelman Financial Engines released a 20-year report analyzing the trends in managed accounts.

One finding was that “managed accounts tend to lead to more positive savings behaviors. Today, managed account members are contributing an average of 9.1% of their income to their account, compared to 7.8% for non-members and 7.4% for individuals primarily invested in a single target-date fund.”²

#2 Personalized Approach

Professional 401(k) account management helps provide a customized and personalized savings strategy for retirement.

Saving for retirement is not one-size-fits-all. 

This is why the Edelman Financial Engines 2024 Igniting Growth Through Innovation report found, “The percentage of managed account members taking advantage of adding personal data and preferences has grown significantly in the past decade, from 33% in 2014 to 74% in 2023.”³

You are unique. Your risk tolerance and retirement goals are personal.

401(k) account management by real people understands this is the case, which is why so many people are moving away from DIY investing and robo investing to managed accounts.

#3 Reduce Fees

Fees hidden within your 401(k) may take away from your investment returns and leave you with less money in retirement than you planned. 

Yet, 92% of 401(k) investors have no idea what they are paying in fees.⁴

Personalized professional 401(k) account management helps you identify the fees inside your 401(k) and know if you’re paying too much.

#4 Save Time and Ease Stress

A set-it-and-forget-it approach to retirement savings most likely won’t get you to your goals. 

Managing a 401(k) takes time and action, but not everyone knows how or has the time to do so.

If you don’t have the time to learn how to manage a 401(k) account effectively, professional account management can help. 

Passing the time-consuming task of managing your 401(k) to the professionals will allow you to focus on other things in your life, knowing your account is taken care of. 

You won’t have to worry about rough markets, data, or trends because you’ll have someone there to guide you.

With professional advice, you are more likely to make better financial decisions. And, thus, potentially earn more to boost retirement savings.

Professional 401(k) account management may alleviate stress.

According to Edelman Financial Engines 2024 Igniting Growth Through Innovation report, “94% of managed account members are more confident that they’ll reach their retirement goals because they’re enrolled in the program.”⁵

At the same time, over half of Americans believe we are facing a retirement crisis.

Wouldn’t you rather be one of the Americans who feel confident they’ll reach their retirement goals than those who fear running out of money?

#5 Protect Your Retirement

401(k) Maneuver provides professional account management to help you grow and protect your 401(k) account. 

Our goal is to increase your account performance over time, manage downside risk to minimize losses, and reduce fees that may harm your account performance. 

Our done-for-you virtual service lets you keep your 401(k) right where it is while we review and rebalance your account based on your risk tolerance and current market conditions.

Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) strategy session with one of our advisors.

Book a Call

Sources

1. https://institutional.vanguard.com/content/dam/inst/iig-transformation/insights/pdf/2024/has/how_america_saves_report_2024.pdf
2. https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/49240/2024_20_years_managed_accounts_report_final.f65d5278bee2.pdf
3. https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/49240/2024_20_years_managed_accounts_report_final.f65d5278bee2.pdf
4. Over 90% of Americans make the 401(k) Mistake, Maurie Backman, Motley Fool
5. https://assets.foleon.com/eu-central-1/de-uploads-7e3kk3/49240/2024_20_years_managed_accounts_report_final.f65d5278bee2.pdf

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As we approach the end of 2024, it’s important to make the most of the last 90 days if you want to reach your financial goals. Take a look at these 12 Q4 finance tips that may help you boost savings and finish strong.

#1 Assess Your Goal Keeping

Take some time to assess your progress toward reaching your short-term and long-term goals.

Did you have a goal to pay off debt in 2024? How close are you? What steps can you take to get yourself to that goal in the last 90 days?

What are your retirement goals? Do you want to be one of the 422,000 401(k) millionaires?¹ How close are you? What are some things you can do to make it more possible to meet this goal?

Keep in mind that 20% of 401(k) investors entered the 7-figure club between September and the end of December last year (Q4 of 2023).²

The final 90 days pushed these investors into the millionaire club.

Be honest with yourself about your goal-keeping and get real about achieving these goals.

[Related Read: 401(k) Millionaires Soared at the End of 2023]

#2 Make Tax-Advantaged Investments

One of the Q4 finance tips that may make a significant difference to your future is maxing out your IRA.

Technically, you have until Tax Day 2025 to max out your IRA for 2024. But why wait? 

The limit for individual retirement accounts (IRA) in 2024 is $7,000. If you are 50 and over, your limit is $8,000.

If you have a 401(k), see if you can contribute up the contribution limit or max it out. 

The 2024 contribution limit for 401(k) plans is $23,000. If you are 50 and over, your contribution limit is higher at $30,500.

Can you contribute a little bit more out of each paycheck for the last 90 days?

#3 Rebalance Your 401(k)

We recommend rebalancing your 401(k) account allocations quarterly. 

Unmanaged allocations may experience larger losses because of down markets. In contrast, they may miss out on growth opportunities during good markets.

Instead of allowing these things to happen, rebalance regularly.

If you haven’t before, start now!

[Related Read: How Rebalancing May Boost 401(k) Returns]

#4 Cash In on Investment Losses

One of the Q4 finance tips you don’t want to miss out on is claiming capital losses.

The IRS allows you to claim up to $3,000 in capital losses per year or $1,500 for a married individual filing separately. 

You may carry over unused losses into future years if you exceed this amount.

#5 Boost Your Emergency Fund

Bankrate’s 2024 Annual Emergency Savings Report found that “nearly 6 in 10 (59%) US adults are uncomfortable with their level of emergency savings.”³

Even if you have made it through most of 2024 without an emergency, it doesn’t mean you are in the clear.

We never know when a tire will blow, someone will need a hospital stay, or a tree limb will fall through the roof.

Having an emergency fund helps you avoid amassing debt when disaster strikes. 

Use the last 90 days of 2024 to boost your emergency fund – even if this means asking for money for holiday gifts to boost this savings account.

#6 Review Credit Reports

In August 2024, a major data breach was announced. 

This data breach included leaking the social security numbers of almost every American (or 2.9 billion records) and full names, dates of birth, phone numbers, and addresses.

If you haven’t already obtained a credit report, get one.

Call 1.877.322.8228 or visit www.annualcreditreport.com to obtain a free credit report from the 3 major credit reporting agencies.

Look over your credit report and see if you notice anything suspicious.

You may also want to consider freezing your credit to prevent scammers from opening new accounts in your name. 

[Related Read: National Public Data Breach: What You Need to Know]

#7 Plan for Holiday Bonuses

Q4 finance tips always include strategizing for the holidays.

If you haven’t already, start saving for holiday presents and get your holiday spending budget set.

There is another holiday finance tip we hope you’ll use – plan for potential holiday bonuses.

If your company gives a holiday bonus, plan to use this extra money to boost your retirement savings and help you achieve your financial goals.

#8 Reassess Insurance Policies

As we approach the end of 2024, consider where you could be saving money.

Remember, every bit saved is something that could add to your future.

For example, are you overspending on insurance?

Many Americans mistakenly buy insurance and just renew these policies with the same companies year after year.

If you do this, you could be missing out on potential savings!

Use these last 90 days to shop around and see if you can get better rates for the new year.

#9 Use Up Your FSA

If you have a Flexible Spending Account (FSA), you may need to use it up before the end of the year, or else you’ll lose the money.

Over this last quarter, use your FSA pre-tax dollars for healthcare needs.

Schedule doctor appointments and purchase medications so the money doesn’t go to waste.

#10 Create a Better Budget for 2025

The next Q4 finance tip is to plan ahead for the next year.

Keep your short-term goals and long-term goals in mind.

What do you need to do better in 2025 to achieve these goals?

#11 Continue Learning

People make all sorts of resolutions at the start of a new year.

A common resolution is to learn more.

But life happens, and the goal they had to read more or gain more knowledge lands on the back burner.

If this sounds familiar, don’t give up. There is still plenty of time to achieve this goal!

Spend the last 90 days learning more about finance and investing.

#12 Seek Professional Advice

Likely the most effective of the Q4 finance tips is to seek professional advice.

Speak to a financial advisor to get on track and stay on track with your financial goals.

If you want independent, professional account management to help grow and protect your 401(k), schedule a complimentary 15-minute 401(k) strategy session with one of our advisors.

Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

Book a Strategy Session

SOURCES

1. https://newsroom.fidelity.com/pressreleases/fidelity–2023-retirement-analysis–despite-uncertain-market-conditions–retirement-savers-have-high/s/b1b9fef9-4da9-4725-9080-bd614678181b
2. https://www.fidelity.com/about-fidelity/Q4-2023-retirement-analysis
3. https://www.bankrate.com/banking/savings/emergency-savings-report/

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With the holidays right around the corner and the end of the year fast approaching, the last thing you want to do is blow your budget on fall activities.

Between fall sports, Halloween, and fall travel, the costs add up…and it’s too easy to overspend. 

If you aren’t careful, you might miss out on your 401(k) savings goal or go into debt during the holidays.

Fortunately, there are tons of budget-friendly fall activities for families to enjoy.

Here’s a big list that will bring lots of fun without financial strain.

#1 Go Apple Picking

If you are lucky enough to live near an apple orchard, make a point to take your family apple picking this fall.

This is one of our favorite budget-friendly fall activities.

It is seasonal fun, and you also get to go home with bushels of apples to eat!

#2 Bake Apple Treats

Whether you live close enough to an apple orchard or have to get some apples from the store, fall is the best time to bake apple treats.

In addition to the traditional apple pie, there are countless recipes for delicious apple treats.

Here is a recipe from Just a Taste for Crescent Roll Apple Dumplings.

Ingredients

• 1/2 cup (1 stick) unsalted butter
• 1 cup apple juice
• 1 cup packed light brown sugar
• 1 teaspoon ground cinnamon
• 1 1/2 teaspoons vanilla extract
• 2 (8-oz.) cans refrigerated crescent rolls
• 2 medium Granny Smith apples, peeled and cored

Directions

1. Preheat the oven to 350°F and grease a 9×13-inch baking pan with cooking spray.
2. In a medium saucepan set over medium-high heat, combine the butter, apple juice, brown sugar, and cinnamon. Cook, stirring, until the butter is melted and the mixture comes to a rolling boil. Remove the mixture from the heat and stir in the vanilla extract. Set the mixture aside.
3. Tear apart the crescent rolls and arrange the triangular-shaped pieces of dough on your work surface.
4. Cut each of the apples into 8 wedges. Place an apple wedge on the widest side of the triangle then roll the apple up with the dough. Arrange the dumplings in the greased pan then pour the apple juice mixture on top of and around the dumplings.
5. Bake the dumplings for 25 to 30 minutes or until the dough is cooked through and they are golden brown. Remove the dumplings from the oven and allow them to cool for 5 to 10 minutes in the pan before serving.
6. NOTE – These apple dumplings are great served straight from the pan, but for added indulgence, top them off with a scoop of vanilla ice cream or whipping cream.

#3 Head to a Fall Festival

Fall is festival season, and thankfully, most fall festivals are budget-friendly.

Look in your community or nearby towns for fall festivals that feature food, craft vendors, kids’ activities, and entertainment.

Many won’t have a fee to enter, so just make sure you don’t overspend on candy apples!

#4 Get Lost in a Corn Maze

Another of our favorite budget-friendly fall activities is trekking through a corn maze. Corn mazes are inexpensive and can be enjoyed for hours on a fall day.

#5 Camp Out in Your Backyard

Fall is a wonderful time to go camping.

If you don’t want to pay for a campsite or travel, consider camping out in your own backyard. This is especially fun for families with little ones.

#6 Carve Pumpkins

You can find budget-friendly carving tools at places like the Dollar Store or use knives you already have at home.

Note – While pumpkin patches are fun to visit, you will spend less money on pumpkins if you buy them at the grocery store.

#7 Watch Spooky Movies

Plan a family movie night, but make it spooky-themed.

If you have elementary-aged children or grandchildren, watch classics like Casper or Hocus Pocus. For families with older kids, introduce them to old-school scary movies, like the original Halloween.

#8 Cheer on the Home Team

Fall means football! Instead of spending big bucks to see a college or pro football game, enjoy your local Friday night lights.

Go out and support your local high school team.

#9 Peek at Some Leaves

Admiring changing fall foliage is the perfect budget-friendly fall activity for families.

It costs little to no money. Drive around and observe the changing leaves, or simply walk through your neighborhood.

#10 Host an At-Home Tailgate

For families who like to host parties, consider hosting an at-home tailgate for the big game.

You provide the television and basic supplies. Then, ask your friends and neighbors to bring a potluck dish to share.

#11 Make Smores

Nowadays, you can purchase an inexpensive outdoor fire pit, which is great for keeping you warm and cooking s’mores. If you don’t want to spend on a fire pit, build a small campfire or use your fireplace.

#12 Roast Pumpkin Seeds

When you carve your pumpkin, make sure you save the pumpkin seeds. They are easy to roast and taste great! 

All you have to do is toss the pumpkin seeds on a baking sheet with some oil and salt. Bake at 350 degrees for 10 – 20 minutes.

#13 Make Your Own DIY Pumpkin Spice Latte

The average cost of a grande (16-ounce) pumpkin spice latte at Starbucks is $6.50. 

For a family of four, that is $26.00. 

If your family loves their pumpkin spice beverages, it is wise to purchase pumpkin spice coffee syrup.

This costs around $5.00, but it allows you to make several pumpkin spice-flavored coffees at home for much less than you’d spend at Starbucks.

#14 Have a Chilli Cook-Off

Another one of the well-loved budget-friendly fall activities is the classic chili cook-off. This is a great way to gather with friends. 

Ask everyone to bring a crockpot of chili, set out a bunch of small, disposable cups and spoons, and enjoy a feast.

#15 Stock Your Freezer

If you want to spend time with loved ones and stock your freezer, host a fall freezer party.

For this type of party, you ask each person to bring the ingredients to make a freezer meal for the number of attendees. 

For example, if six people are coming, ask guests to bring enough ingredients to make six freezer meals.

Tell everyone to also bring gallon-sized freezer bags and a cooler.

On the day of the event, everyone comes over to the host’s kitchen to cook and assemble their gallon-sized freezer meals.

At the end of the event, everyone goes home with six freezer meals and memories. 

Thriving Home has a great blog that walks you through planning a freezer meal party.

#16 Don’t Go Overboard on Halloween

It’s easy to overspend on Halloween. It is tempting to buy all new costumes and decorations, but you don’t have to.

Reuse decorations. Consider hosting a kid’s costume swap. Visit thrift stores.

Buy candy in bulk and give out single pieces rather than goody bags. (Trust us – the kids don’t care.)

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As we approach the final quarter, it’s time to talk about financial risks that could significantly cost you.

Let’s say you’ve made a financial goal for 2024. If you aren’t paying attention, you may miss that goal because you have to pay more in taxes than expected.

Or you may be really close to having a fully funded emergency fund just to blow it on holiday shopping.

Then again, there are also financially wise opportunities you may simply miss out on, such as employee benefits like health savings account funds.

Review these potential 5 financial risks and make sure you are in a better position come the end of the year.

#1 Review and Adjust Your Tax Strategy

Planning now may prevent a surprise tax bill and help potentially lower your tax bill in April 2025.

If you have withdrawn from your 401(k) and are 59½ and younger, you may be penalized and taxed 20% on the withdrawals.

In addition to 401(k) tax implications, you should also make sure you have a strategy for your taxes.

Meeting with your CPA now can help you optimize your tax strategy before the year ends.

Your CPA can advise you if you need to adjust your withholdings, maximize deductions, or make charitable contributions to reduce your tax burden.

#2 Plan Now for Your Holiday Shopping Budget

Christmas – and all its financial risks – will be here before you know it.

In 2023, “A little over a third (34%) of Americans went into debt [during the] holiday season.”¹

The average debt for holiday spending in 2023 was $1,028.²

However, in 2022, Americans took on an average of $1,549.³

While Americans spent less in 2023, they still took on debt.

And it will happen again this year.

According to Salsify’s “2024 Holiday Consumer Research” report, “ 65% of shoppers plan to spend “about the same” as they did in 2023. Just 21% plan to spend less and 15% will likely spend more.”⁴

Where you fall on the holiday financial risk scale is up to you…

Will you spend less, the same, or more this holiday season?

The best way to prepare for holiday shopping is to create a holiday budget NOW.

Do not wait until Black Friday. Don’t wait until early December.

Take a serious look at your financial situation today and create a realistic budget based on what you currently have for holiday shopping and what you can save between now and then.

And don’t forget to budget not only for gift shopping, but also for holiday travel, décor, and events.

If you know you are only budgeting for $100 per family member, you will avoid overspending when the sales hit.

If you know you won’t have enough time to save up for several holiday outings, go ahead and make plans for the events that you can afford.

#3 Review and Maximize Employee Benefits

As year-end approaches, review your employee benefits, especially if your company has an open enrollment period.

Let’s look at a few examples.

Boost your 401(k) contributions. If you aren’t already getting the company match, start contributing enough to receive it.

Keep in mind that you get a tax break for every dollar that you invest into your 401(k) with pre-tax dollars.

For example, if you make $50k per year and contribute 3% of your pay into your 401(k), it equals a $1,500 investment.

In turn, this $1,500 drops your taxable income down to $48,500.

Utilize your health savings account while you can benefit from pre-tax savings on qualified medical expenses.

Take time to look into other employee benefits that can help you with financial risks.

For example, some employers offer discounted prescription medications as a benefit that may not be covered by health insurance.

Some employers offer company products or service discounts. Sometimes, these may even include services you are already paying for (such as streaming services).

Many companies now offer wellness benefits, such as gym memberships and mental health coverage.

Taking full advantage of these employee benefits can improve your overall financial picture.

#4 Plan for the Unknown

Living without emergency savings is one of the most common financial risks.

Yet, over 1 in 5 Americans have no emergency savings at all.⁵

And those who do have emergency savings don’t have enough.

According to the 2024 Empower “Emergency Savings” study, “Nearly 2 in 5 (37%) couldn’t afford an emergency expense over $400. […] Americans have accumulated a median emergency savings of just $600. Baby Boomers and Gen Xers have put aside the most for the unforeseen with median savings of $1,000 and $868, respectively, and Millennials and Gen Zers the least with median savings of $500 and $200, respectively. The median savings for men sits at $1,000 — twice as much as the median savings for women.” ⁶

Emergencies happen.

Where will that money come from if you aren’t prepared to cover the cost of an emergency?

Experts suggest saving enough money to cover three to six months of expenses.

How close are you to this size emergency fund?

Make it a goal to build up your emergency fund before the year ends.

Adjust your budget to accommodate the amount you need to get your emergency fund closer to your goal.

If you lose your job, get sick, or need a new roof, having this cushion will help you handle whatever comes your way without impacting your financial stability.

#5 Get Professional Help to Prepare for Year-End Investment Moves

One of the best ways to avoid financial risks as the year ends is to seek professional help.

It’s far better to get help before you really need it than to wait until the end of the year and receive a surprisingly large tax bill.

[Related Read: How Professional 401(k) Management May Help Account Performance ]

A proactive approach (rather than a reactive approach) allows you to avoid financial risks or losses and take advantage of market opportunities.

For example, get help reviewing your investment portfolio.

A qualified financial advisor will suggest adjustments, including rebalancing your portfolio, selling underperforming assets, or making contributions to retirement accounts to maximize tax benefits.

Your advisor will consider the big picture and advise you on your course of action as you approach the end of the year.

401(k) Maneuver provides independent, professional account management to help employees, just like you, grow and protect their 401(k) accounts.

Our goal is to increase your account performance over time, manage downside risk to minimize losses and reduce fees that are hurting your retirement account performance.

With 401(k) Maneuver, you can wrap up the year and start a new one with confidence, knowing we are managing your 401(k) for you.

Have questions or concerns about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors.

Book a Strategy Session

Sources

1. https://www.lendingtree.com/credit-cards/study/average-holiday-debt/
2. https://www.lendingtree.com/credit-cards/study/average-holiday-debt/
3. https://www.lendingtree.com/credit-cards/study/average-holiday-debt/
4. https://www.salsify.com/blog/consumer-spending-trends-holiday-shopper-spend-predictions
5. https://www.empower.com/the-currency/money/over-1-in-5-americans-have-no-emergency-savings-research
6. https://www.empower.com/the-currency/money/over-1-in-5-americans-have-no-emergency-savings-research

Americans are not saving enough for retirement.

In a report entitled Americans Face Alarming Retirement Savings Shortfall, the National Institute for Retirement Security shares, “Most Americans will not have enough money for a financially secure retirement. […] NIRS research found that for Generation X, a generation that is quickly approaching retirement and the first that will retire largely without pensions, the bottom half of earners have only a few thousand dollars saved for retirement. This means the vast majority of Gen Xers are not even close to having enough savings to retire. And when Americans don’t have adequate retirement income, they are more likely to fall into poverty or turn to public assistance programs or families to make ends meet.”¹

This is a major problem.

Even if you have saved enough money for retirement, it’s a guarantee that you know someone else who has not.

There are many reasons why Americans are not saving enough for retirement.

Take some time to read about the reasons so many are not saving enough for retirement and consider how they can improve their situation.

If there is someone in your life who does not seem to be saving enough for retirement, we encourage you to show compassion and share these tips with them. 

Social Security Is Not Enough for Retirement

Many Americans believe they can rely on Social Security during their retirement years.

Unfortunately, Social Security does not provide enough money for most Americans to live comfortably during retirement.

The average retired worker’s monthly Social Security benefits in 2024 is $1,827. For couples receiving Social Security benefits, it’s $2,972.

While this is certainly better than nothing, it is not enough for retirement, given inflation and rising medical costs.

Experts suggest the cost of retirement is 80% of your pre-retirement income.

Let’s say a couple earns $120,000 annually. If you follow the 80% rule, they should expect to earn $96,000 annually, which equates to $8,000 a month.

$8,000 a month is significantly more than the $2,972 they can anticipate receiving from Social Security. 

The couple would need an additional $5,000 to reach 80% of their pre-retirement income.

The truth is, Social Security is NOT designed to cover the bulk of your pre-retirement income.

According to the Social Security Administration, “For someone with average earnings who retires in 2024 at age 65, Social Security benefits replace about 39 percent of past earnings.”²

However, reports have found that 40% of older Americans rely solely on Social Security for retirement income.³

Pensions Are a Thing of the Past

It is no longer common for employers to offer pension plans to their employees.

According to a congressional report, “Between 1975 and 2019, the number of people actively participating in private-sector pension plans dwindled from 27 million to fewer than 13 million.”⁴

Pensions typically provide a guaranteed monthly benefit check to retirees.

Today, more employers offer 401(k) plans, which require employees to save up for their own retirement.

David John, a senior strategic policy adviser at the AARP Public Policy Institute, explains, “The beauty of traditional pensions is that I work, I don’t really have to deal with any investment returns… and then I retire, and I get essentially a retirement paycheck on top of my Social Security. [With a 401(k)], you have to make a decision at the end of your working life: ‘What am I going to do with this money?’ And that is a complex and confusing decision that one has to make.”⁵

401(k) Knowledge Is Weak

With Social Security not providing enough and pensions being almost nonexistent, it means Americans must utilize 401(k) plans to save for retirement.

However, 63% of Americans don’t understand how a 401(k) plan works.⁶

This is a major problem!

If the bulk of your money is in a plan that you don’t understand, chances are, you may be behind on retirement savings. 

If you’re contributing money to a 401(k), you need to know how the plan works so you can get the most out of it.

[Related Read: 6 Questions Every 401(k) Investor Needs to Ask ASAP]

Americans Lack Financial Literacy

It’s not just a lack of understanding of 401(k) plans; it’s also a general lack of financial literacy.

Generally, financial literacy is not taught in schools.

Without a solid financial education, Americans grow up without enough knowledge to save adequately for retirement.

As a result of lower financial literacy, older Americans may make poor financial decisions.

How to Better Prepare to Retire Comfortably

Now that we know the reasons why Americans are not saving enough for retirement, let’s look at some ways they can turn things around. 

• Begin financial planning. Review your current savings and consider your future needs.
• Plan within Your Means. Take a realistic approach to retirement saving. Rather than attempting to save for a retirement that is out of reach, plan within your means. Calculate how much you expect to receive from social security. Then, figure out how much more you’ll need to retire safely.
• Take Advantage of Company Matching. While you have access to an employer-sponsored 401(k) plan with company matching, take advantage of matching contributions. Make it your goal to always contribute at least enough to receive this free money.
• Boost Contributions. Knowing the high cost of retirement, make every effort to boost your contributions. For those closer to retirement age, take advantage of catch-up contributions.
• Wait to Retire. The longer you wait to withdraw social security, the better. The Social Security Administration explains, “The age you stop working can affect the amount of your Social Security retirement benefits. We base your retirement benefit on your highest 35 years of earnings and the age you start receiving benefits.” 

You should also wait to withdraw from your 401(k). Even if you are tempted to take an early withdrawal, wait it out. This will help you avoid penalties.

• Continue to Learn. It’s never too late to learn. Just as you are reading this article explaining why some Americans are not saving enough for retirement, you should read other financial articles. Subscribe to newsletters. Watch YouTube videos. Listen to podcasts.
  
• Speak to a Professional. Even if you have basic investment knowledge, speaking to an expert may change the performance of your account from good to great…and potentially boost retirement savings.

If you have questions about your 401(k) or if you need help, we’re here for you. Click below to book a complimentary 15-minute 401(k) Strategy Session.

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SOURCES

1. https://www.nirsonline.org/2024/02/americans-face-alarming-retirement-savings-shortfall-according-to-national-institute-on-retirement-security-testimony-before-u-s-senate-committee/
2. https://www.cbpp.org/research/social-security/top-ten-facts-about-social-security#:~:text=About%2067%20million%20people%2C%20or,young%20survivors%20of%20deceased%20workers.
3. https://www.nirsonline.org/2020/01/new-report-40-of-older-americans-rely-solely-on-social-security-for-retirement-income/
4. https://www.usatoday.com/story/money/2024/03/19/pensions-are-popular-why-dont-more-americans-have-them/72968970007/
5. https://www.usatoday.com/story/money/2024/03/19/pensions-are-popular-why-dont-more-americans-have-them/72968970007/
6. https://www.cnbc.com/2019/03/07/63-percent-of-americans-are-confused-about-401k-retirement-plans.html

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