A Sophisticated  Approach to Financial Services

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.)

Better Prepare for a Life of Abundance in Retirement.
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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.

Book a Call

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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In the ever-evolving landscape of data security, the recent and alarming cyber crisis has left millions of Americans reeling. 

This particular data breach included PII (personal identifiable information), including Social Security numbers of almost 3 billion people.

In response to this data breach, New York Rep. Ritchie Torres said: “When it comes to cyberspace, there is no law and order, only lawlessness and disorder. We live in a cyber world, where your most sensitive data can be collected without your knowledge or consent by a private company and then stolen by a cybercriminal, leaving you wide open to identity theft. It is fair to say that cyberspace is the most lawless place on earth.”¹

Cybercriminals are savvy – we need to be smarter.

Read on to learn how to handle this latest data breach and protect yourself from the next one.

The Latest Data Breach: Here’s What Happened

National Public Data, a data broker company providing background check services, announced in August 2024 that it had experienced a massive data breach.

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.

The breach was a hack by the cybercriminal organization USDoD, which attempted to sell all this PII data on a dark web forum.

How to Find Out If Your Info Was Leaked

There are several ways to determine if your PII has been compromised.

• Have I Been Pwned – This is a free website that has been around for some time and allows users to enter their email addresses to see if they have been involved in any data breaches.
• npdbreach.com—This website was created specifically for this data breach and does not store searches. It allows users to search by name, zip code, SSN, or telephone number.
• npd.pentester.com – This website was created by the cybersecurity firm Pentester, which allows users to search by name, state, and birth year to see if they were affected by this particular data breach.

What to Do If Your PII Was Leaked

If you discover that your PII was part of the 2024 National Public Data breach, there are steps to take to protect yourself from becoming a victim of identity theft.

• Sign up for fraud alerts. It is free and easy to sign up for free fraud alerts. Contact one of the three credit bureaus.
• • Equifax: Call 1.800.685.1111 or visit its website.
  • Experian: Call 1.888.397.3742 or visit its website.
  • TransUnion: Call 1.888.909.8872 or visit its website.
    
• Get a credit report. Call 1.877.322.8228 or visit www.annualcreditreport.com to obtain a free credit report from the three major credit reporting agencies.
  
• Monitor financial accounts. Keep a close watch on your financial accounts.
• Contact financial institutions if you notice anything. If you notice anything suspicious, contact your financial institutions immediately.
• Freeze your credit. Freezing your credit limits access to your credit report, which makes it difficult for anyone to open new accounts in your name. According to CBS News, “Security experts are advising all Americans to take a few minutes to complete what they deem an essential step in protecting one’s credit files in a day and age when cybersecurity breaches are becoming increasingly common.”² It’s easy to freeze your account, and some experts believe you should always have your credit frozen and unfreeze it as needed.
• Utilize Social Security Administration’s Block Electronic Access Service Tool. This is a unique tool designed to protect against identity theft. According to the Social Security Administration, the eServices block “prevents anyone, including you, from seeing or changing your personal information online. Once [the SSA] adds the block, you or your representative will need to contact your local office to request its removal.”³

What to Do If You Are the Victim of Identity Theft

If you believe your PII has been stolen and you are a victim of identity theft, these are the steps you need to take. 

• Report It to the FTC. Start by reporting the identity theft to the Federal Trade Commission at identitytheft.gov using the online form. They will send you a personal recovery plan that details what you need to do to recover your identity.
• File a police report. File a police report locally and keep a copy for your records.
• Contact the IRS. Contact the Internal Revenue Service to prevent a thief from using your SSN to file a tax return and receive your refund.
• Contact the SSA. Reach out to the Social Security Administration to have them review your statements.

Steps to Take to Protect Yourself

Even if you were not affected by this massive data breach, you should still take steps to protect your identity online.

Use these steps to keep your PII safe.

• Use strong passwords. Experts recommend using lengthy password phrases comprised of multiple words and numbers that would be difficult for hackers to guess.
• Use multi-factor authentication. When accessing any site that includes PII (personally identifiable information), use multi-factor authentication. This requires the user to submit a password and gain access via an additional code sent via text message or email.
• Beware of scammers. Unfortunately, in light of a data breach this large, there will be scammers. Scammers may have enough PII to convince you that they are legitimate representatives of the Social Security Administration or a financial institution. Do not click on any links or give out information over the phone. Contact your institution directly.
• Set up a My Social Security account. Create a my Social Security account even if you are not receiving benefits. This will allow you to see future benefits estimates if you aren’t receiving benefits yet. If you are receiving benefits, you can use my Social Security to add blocks preventing anyone from viewing and changing personal information online and blocking direct deposits.
• Sign up for security alerts. Sign up for security alerts with your bank and credit card company.
  
• Monitor accounts. You must stay aware of what is happening with your financial accounts (bank accounts, credit card accounts, and retirement accounts). It’s imperative that you register for online accounts and monitor them regularly. The sooner you recognize discrepancies, the better.

Better Prepare for a Life of Abundance in Retirement.
Check us out on YouTube.

Book a Strategy Session

Sources

1. https://www.cbsnews.com/newyork/news/social-security-breach-what-to-do-ritchie-torres/
2. https://www.cbsnews.com/news/how-to-freeze-your-credit/
3. https://www.ssa.gov/fraud/

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Given the increase in the cost of retirement, it’s no wonder many are worried they are behind on 401(k) savings.
According to the Northwestern Mutual 2024 Planning & Progress Study, “American adults say on average they now need $1.46 million to retire. That’s 15% higher than a year earlier and a 50% increase since 2020.”¹
If you are one of the many Americans who feel as if you are behind on 401(k) savings, there are ways you can catch up.
Follow these tips to boost your 401(k) savings and prepare to retire more comfortably.

#1 Increase Contributions

The most obvious way to boost 401(k) savings is to increase how much you contribute.

If your 401(k) account is still set up just as it was when you were first employed, it’s time to make changes.

Begin by increasing the percentage of your paycheck you contribute each month.

Financial advisors will tell you that it is a no-brainer to contribute at least enough to receive the company match.

That’s because it’s free money.

Let’s say your employer matches 100% up to 6% of your pay.

If you make $40,000 a year and contribute $2,400 (or 6%) for the year, your employer will match this 100%.

This means you would get $2,400 of free money.

But contributing just enough to get the company match isn’t enough.

While contributing something is better than nothing, $2,400 isn’t going to get you far if you are behind on 401(k) savings.

Ideally, you should aim to contribute the maximum amount allowed.

The employee 401(k) contribution limits for 2024 have increased to $23,000. 

For those 50 and older, you should also take advantage of catch-up contributions, which allow you to contribute more than $23,000.

Catch-up contributions are designed specifically for those who are behind on 401(k) savings. 

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

[Related Read: Big Catch-Up Contribution Changes Coming in 2024]

#2 Earn More Money

If you are behind on your 401(k) savings, you need to do whatever you can to earn more money for retirement.

Even if this means you need to take on a side hustle or a second job.

Take advantage of the gig economy and earn money for doing simple tasks for other people when you aren’t working at your full-time job.

Find another way to earn money, and then, take all the extra money you earn and put it into your 401(k) account.

[Related Read: Close the Gap on Financial Goals with a Side Hustle]

#3 Get Healthy Now

Healthcare is one of the most expensive parts of retirement – and healthcare costs are rising.

According to the Fidelity Retiree Health Care Cost Estimate, “A single person age 65 in 2023 may need approximately $157,500 saved (after tax) to cover health care expenses in retirement. An average retired couple age 65 in 2023 may need approximately $315,000 saved.”²

Fidelity also claims that “the average age 65-year-old couple today will spend around $12,000 on healthcare in their first year of retirement.”³

Given the rising costs of healthcare, it is imperative to get healthy now.

The cold hard truth is that the less healthy you are, the more expensive your healthcare will be in retirement.

PBS News reports, “Obesity is an expensive disease, especially for aging seniors. One study found that while obese 70-year-olds live as long as healthy weight 70-year-olds, they will spend $39,000 more on health care.”⁴

If you are making unhealthy choices today, you will literally pay for them tomorrow.

Change your habits and embrace a healthier lifestyle.

Exercise regularly to reduce the chances of heart disease and stroke.

Take advantage of your employer-sponsored healthcare insurance plan, which should include regular physicals and preventative care options.

#4 Cut Expenses

What you spend money on today will affect your retirement savings tomorrow.

Think of it this way: If you spend less, you can save more.

If you know you are behind on 401(k) savings, it’s time to take a good hard look at your expenses. 

Are there places where you are spending more than you need?

Consider cutting these expenses:

• Subscription services – Do you need multiple ones?
• Clothing – Do you have more than you need?
• Gifts – Do you overspend when giving to others?
• Vacations – Can you take less expensive vacations?
• Food and drink – Can you reduce how often you eat out to save money?
• Entertainment – Are you willing to utilize free community events and library services?
• Utilities – What are some ways you can lower energy and water costs?
• Home repairs and landscaping services – Can you do it yourself or negotiate for better rates?

Wherever you cut back, make sure you are placing the saved money toward your 401(k).

#5 Seek Professional Help

There is no shame in getting help if you are behind on 401(k) savings.

And you’ve come to the right place!

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 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.forbes.com/sites/bobcarlson/2024/05/24/how-much-money-do-you-really-need-to-retire-comfortably/
2. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
3. https://communications.fidelity.com/wi/tools/retirement-health-care/
4. https://www.pbs.org/newshour/show/extra-costs-extra-weight-older-adults

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Early 401(k) withdrawals are soaring.

According to the Vanguard Group, “A record-breaking number of Americans are making emergency withdrawals from their 401(k) retirement plans in order to cover a financial hardship amid the ongoing inflation crisis.”¹

Approximately 3.6% of workers participating in employer-sponsored 401(k) plans made early 401(k) withdrawals in 2023, higher than the 2.8% in 2022.²

The report found that “about 40% of individuals who dipped into their 401(k) last year did so to avoid foreclosure — up from about 36% in 2022.”³

While early 401(k) withdrawals may solve the problem today, they may create bigger problems in the future.

For example, a Capitalize survey found that “early withdrawals from 401(k) retirement funds cost Americans $6.12 billion in penalties” in 2023.⁴

Keep reading to see why early 401(k) withdrawals may hurt your financial future and how to avoid pulling funds from your 401(k) before retirement.

Why Early 401(k) Withdrawals May Hurt Your Retirement

To withdraw funds from your 401(k) without facing penalties, the IRS says you need to be 59½ years old.

If not, you will be hit with a 10% penalty. This is on top of the 20% automatic withholding for taxes.

Not only do penalties hurt you, but withdrawing early means you miss out on potential growth.

When you contribute to a 401(k), your money earns interest, which compounds over time – meaning you earn returns on your returns. 

The longer your money is invested, the more it can grow. 

Should you pull from your 401(k) early, you risk missing out on that compounding effect and potential growth. 

This can have a significant impact on your retirement savings over time.

Research conducted by Employee Benefit Adviser shows, “A hypothetical 30-year-old participant who cashes out a 401(k) savings balance of $5,000 today would forfeit up to $52,000 in earnings the sum would have accrued for them by age 65, if we assume the account would have grown by 7% per annum.”⁵

Early withdrawals may also put your financial future at risk.

According to the Center for Retirement Research at Boston College, early withdrawals reduce overall 401(k) assets for retirement by 25% on average.⁶

Retirement is getting increasingly expensive.

You will need every penny you have saved to ensure you live well in your retirement years.

While it may be a quick fix today, you could be doing incredible harm to yourself in the future.

Common Reasons for Early Withdrawals and How to Avoid Them

Financial pressure often leads people to take early 401(k) withdrawals.

According to Vanguard, “In 2022, 36% of hardship withdrawals were used to avoid a home foreclosure or eviction, up from 31% of withdrawals in 2021. The second most common reason was medical expenses, as 1 in 3 hardship withdrawals were initiated for this purpose, in line with 2021.”⁷

When the bills are piling up, it is tempting to take from your retirement savings for tomorrow to cover costs today.

The best way to protect yourself and your finances is to build up a solid emergency savings fund.

When financial emergencies occur, you have a safety net.

When it comes to medical expenses, make wise decisions regarding insurance before something happens or someone receives a diagnosis.

If you dip into your retirement savings every time you have debt, you will find yourself in a vicious cycle.

Instead, when tempted to use your 401(k) to pay down debt, strive to follow a debt repayment model that involves spending less.

It’s becoming wise to have multiple income sources.

This will prove helpful should you find yourself unemployed.

Look for investment opportunities and other income streams, such as side hustles.

Strategies to Safeguard Your 401(k) from Early Withdrawals

It’s one thing to tell you not to take an early 401(k) withdrawal. 

You also need to know how to avoid being in a position where it’s a necessity to withdraw the money.

• Automate Savings to Avoid Temptation: Prioritize saving for retirement. It is way too easy to put off saving because retirement seems so far off. Don’t make this mistake! Automate your 401(k) savings and leave it alone.
  

• Create a Realistic Budget and Stick to It: Inflation is certainly hurting people, but it’s not the only reason they’re finding themselves in financial trouble. Some people overspend, whether on a too-high mortgage or too much spending. Avoid overspending by creating a realistic budget that factors in both saving for retirement and saving for emergencies.
  

• Build a Solid Emergency Fund: A common reason people take early withdrawals is that they face unexpected expenses, such as medical bills, relocation, or job changes. The best way to prepare for unexpected expenses is to build up an emergency fund. Factor emergency savings into your budget and have your bank take a portion of each paycheck and put it into a separate savings account.
  

Seek Financial Guidance from a Professional: There is no shame in asking for help. Before you take an early 401(k) withdrawal, speak with a financial advisor who can provide advice on how to turn your financial situation around without significantly harming your retirement savings.

Penalty-Free 401(k) Withdrawal Options When All Else Fails

In a few circumstances, the 10% early withdrawal penalty can be waived.

This is known as a 401(k) hardship withdrawal.

A hardship withdrawal is a withdrawal of funds from a retirement plan due to “an immediate and heavy financial need,” and, if you qualify, you usually don’t have to pay the penalty. 

Situations that qualify for a hardship withdrawal: 

• Medical bills for you, spouse, and dependents 
• Money to buy a house
• Money to avoid foreclosure or eviction 
• College expenses for you, spouse, or dependents 
• Funeral expenses 
• Disability 
• Adoption purposes
• Disaster 
• Military reservist 

To qualify, you must prove you can’t get the money anywhere else, such as a loan or other savings account.

The administrator of the 401k will have to approve a 401(k) hardship withdrawal.

However, you will still have to pay 20% taxes, which is taxed as ordinary income even if you qualify for a hardship withdrawal.

[Related Read: The Real Impact of 401(k) Hardship Withdrawals]

Another option is a 401(k) loan.

A 401(k) loan allows participants to borrow from themselves and then pay themselves back with interest without paying penalties or taxes on the amount borrowed as long as it is paid back on time.

[Related Read: The Downside of 401(k) Loans: Investors Beware]

You will face hefty penalties if you fail to pay the 401(k) loan back on time.

Ultimately, a hardship withdrawal or a 401(k) loan should be treated as a last resort.

Do what you can to avoid treating your 401(k) like your personal bank account.

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

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Sources:

1. 1. https://www.foxbusiness.com/economy/401k-hardship-withdrawals-surge-another-record-high-inflation-stings
   2. https://www.foxbusiness.com/economy/401k-hardship-withdrawals-surge-another-record-high-inflation-stings
   3. https://www.foxbusiness.com/economy/401k-hardship-withdrawals-surge-another-record-high-inflation-stings
   4. https://www.foxbusiness.com/personal-finance/early-withdrawal-surge-2023
   5. https://www.benefitnews.com/advisers/opinion/to-show-participants-you-care-help-them-avoid-401k-cash-outs
   6. http://crr.bc.edu/wp-content/uploads/2015/01/IB_15-2.pdf

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