Should You Max Your 401K in 2023 Despite Record Inflation??

 In Ozarks Live

Should You Max Your 401K in 2023 Despite Record Inflation??

This year, inflation has seen the highest increase since 1981, and many of us have been wondering what that will mean for the future of your 401K or other retirement savings. If you’re concerned about your accounts, please don’t hesitate to reach out to The Resource Center. We’re located in Springfield, MO and offer virtual meetings. 

For context, the IRS creates contribution limits to prevent higher-paid workers from deferring large amounts of money and reaping an unfair value in tax benefits. It helps to keep the playing field fair, essentially. Determining whether or not you should max your 401K contribution varies per person, but I do have some suggestions to consider to (hopefully!) help you make a decision. 

Long-Term Lifestyles to Consider

Desired Retirement Lifestyle

When you’re investing in a 401K, try looking into your future a little. Do you want to travel? Take care of grandchildren? Pursue your hobbies or start a small business of your own? Everyone has a different dream, but not everyone necessarily creates a budgeting plan to financially support their dream. 

Anticipated Retirement Date

If you’re 50 years old and you plan to retire when you’re 67, you have 17 more years to build up your portfolio. Think about it. Take a look at what you have in your retirement accounts and deliberate if you feel strongly, one way or another, about living off the income that you’ve built. 

Hope all the young folks out there are listening, too! The early years of your career often have so much potential for a strong start. Many of our young workers out there are focused on buying a house, raising a family, and paying off debts–all of which can be an even greater challenge with current market volatility. I know it’s not always easy to put extra money into a retirement account when you’re just starting out, but you might be able to save more than you think you can. Try out some easy budgeting tips to get a better idea of your financial standings!

Does Your Employer Match Your 401K?

This is a big one! If your employer matches your 401K contribution–usually by 3-6%–then you’re looking at the opportunity to double the money you invest into your retirement account.

For the sake of easy numbers, let’s say you have a $40,000 annual salary. If you invest 3% of your income, that’s $1,200 a year. If your employer matches your investment, then your yearly contributions add up to $2,400. Now, let’s say that you invested 3% even though your employer could match up to 6%. If you were to contribute an additional $1,200 a year (bringing your personal contributions up to $2,400), that would raise your collective contributions up to $4,800 a year. 

Over 10 years, you’ll have collected $48,000 in this example despite only contributing $24,000 yourself. We’ve normalized spending $2,400 a year in takeout, vacations, new tech and entertainment. So why not invest that money into yourself? 

2023 Market Opportunity: 401K Investments vs Inflation

This is a big thing to consider going into the new year. It’s still common to see stock values trending downwards. This means that you have the opportunity to purchase stocks at a lower value than they may be worth in the future. 

There are plenty of valuable companies in the market whose stocks are as much as 70% cheaper than they were 10 years ago. While there are never guarantees that a company will bounce back, recessions are often an opportunity to buy low and sell high. 

Check out a free Risk Tolerance Calculator to help you evaluate where you are on your investment strategy. 

BONUS TIP: Take Advantage of Saver’s Credit

👉 Saver’s Credit is a $1,000 tax credit to encourage lower/middle taxpayers to put money towards a qualified retirement fund. This incentive does have criteria to meet, such as minimum contributions and income caps. If you’re within the incentive range, you may qualify for a $1,000 credit towards your annual tax obligations.

Additionally, money that you put into your 401K is not considered take-home pay and does not count towards your yearly taxes. Your taxable income will be lessened based on your level of contribution.  

Which Financial Strategy Should You Consider?

There’s no “catch all” plan that works the same for everyone. While there are many incentives to maxing your 401K contribution, there could be a different approach better fitted for your current and future lifestyle goals. 

If you want to know more about which retirement planning strategies could work for you and your family, give us a call and ask about our free consultations. We’d be happy to take a look at your plan and see if we can work with you to help you reach your retirement goal. 

Bruce Porter: 5 MONEY TRAPS to Avoid During a Financial Crisis

Click Here for Video: 5 Worst Money Traps to Avoid During a Financial Crisis

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Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Investing involves risk, including the potential loss of principal. 1594047 – 12/22

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