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401(k) Plans and Retirement


With the economic recession, roller-coaster stock markets, and the dismal news cycle, it has been very easy for investors to become overwhelmed and worry about their retirement options.

How should I invest so I can retire comfortably?

Is it safe to invest in the market?

Should I keep all my money under the mattress?

These are questions and fears we hear all the time. A capable financial advisor should be able to suggest different means to achieve the retirement you desire. A recent comprehensive study about 401(k) participants is enlightening about retirement options and the importance of 401(k) contribution.  The Employee Benefit Research Institute has released a study and their findings show that the average account balance of a 401(k) where participants continued to invest grew by a compound annual rate of 6.8%, even with the low 2008 market.

The average account balance for participants who contributed consistently grew from $77,049 to $107,053, over a five year period. Growth rates addressed several factors including employer and employee contributions, investment returns, withdrawals and loans.

The benefits of consistent contribution are evident. The study also shows that over 30% of the consistent participants had more than $100,000 into their 401(k) accounts, whereas only 18% of those who did not consistently contribute had the same amount.

The research truly emphasized that contributing and investing in your 401(k) plan consistently leads to a higher average account value than the average balance for the participants who sporadically contribute. Also, not surprisingly, tenure with a company is connected to the 401(k) amount. The longer a participant has worked for an employer, the larger their 401(k) balance is likely to be.

So, based on the study, what’s the lesson? Contribute to your 401(k)…consistently! It’s important to make retirement savings a continuous priority. The easiest way to do this is by paying into your account first. Make retirement savings your first priority and then organize your the rest of your expenses to be paid afterwards.

Does your employer offer a 401(k)? Have you taken advantage of this option?

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Comment   |  3 years, 9 months ago from Denver, CO