401(k) Balance at Retirement
You can boost your retirement savings in just a few steps. Create an account to reduce your bills, eliminate debt and grow your money.
A 401(k) is a retirement plan offered by some employers. These plans allow you to contribute directly from your paycheck, so they’re an easy and effective way to save and invest for retirement. There are two main types of 401(k)s:
Matching dollars, for one thing. Over 90% of employers that offer a 401(k) plan also kick in a company match, which means as you contribute, your employer will, too. Commonly, that match will be worth 50% to 100% of your contributions, up to a limit that typically falls between 3% and 6% of your annual salary. If your employer offers up this free money, a good rule of thumb is to do everything you can to contribute enough to take advantage of it.
The other huge benefit of the 401(k) is that it allows you to put a lot of money away for retirement in a tax-advantaged way. The annual 401k contribution limit is $20,500 for tax year 2022, with an extra $6,500 allowed as a catch-up contribution every year for participants age 50 or older.
401(k) accounts often offer a small, curated selection of mutual funds. That’s a good thing and a bad thing: On the plus side, you may have access to lower-cost versions of those specific funds, especially at very large companies that qualify for reduced pricing.
The negative is that even with discounted costs, that small selection narrows your investment options, and some of the funds offered may still have higher expense ratios than what you’d pay if you could shop among a longer list of options. That can make it harder to build a low-cost, diversified portfolio.
Some plans also charge administrative fees on top of fund expenses, which can add up. If your 401(k) is expensive, contribute enough to earn your company match, and then direct any additional retirement savings contributions for the year into an IRA.
Yep. A few things, actually.
Contribution limits: The IRS puts limits on the amount of money that can be contributed to 401(k)s and IRAs each year. These limits sometimes change from year to year.
Diversification: Spreading investment dollars across a range of assets (for example, stocks, bonds and cash) to cut down on your investment risk.
IRA: An is an investment account for retirement savings. Contributions may be tax-deductible, or withdrawals may be tax-free.
Mutual fund: An investment that pools money from many investors to buy assets such as stocks or bonds. Many 401(k) plans use .
Portfolio: A collection of investment assets. A well-diversified portfolio might include assets such as stocks, bonds, exchange-traded funds and mutual funds.
Retirement age: The depends on you. Full Social Security benefits currently begin at age 66, but will rise to 67 for people born in 1960 and later. Early retirement benefits are available at 62, but at a lower monthly amount.
Returns: The money you earn or lose from an investment.
Risk: The possibility that an investment will perform poorly or even cause you to lose money. In general, a low-risk investment will deliver lower potential returns and a high-risk investment may deliver higher returns, but may also cause you to lose your investment.
Robo-advisor: An automated investing service or online advisor. Robo-advisors use computer algorithms and software to create and manage investment portfolios, including IRAs. They're often less expensive than human financial advisors.
Tax-advantaged: When you get tax benefits from an investment account. For example, you can make 401(k) contributions from your paycheck before tax is taken out. You don't pay taxes on those contributions or the earnings until you withdraw the money. In other accounts, such as Roth IRA, you can pay taxes on your contributions up front, then withdraw your money tax-free in retirement.