Regular readers of Free Money Finance know that I'm a big fan of the 401k. And what's not to love? There are lots of great advantages of a 401k. You get free money (from your employer match), get a tax break this year (as the money you contribute isn't counted as income), earn additional funds with no taxes due until retirement, and do all of this in a simple, easy, and painless manner (the money you save is deducted right out of your paycheck before you even see it). It's a great, great way to save for retirement.
And now we learn that saving in a 401k is vital to your financial health. Here are some learnings from CFO.com:
If you don't contribute to your 401(k) plan, you probably won't have enough money to maintain your current lifestyle.
That's one of the findings in a new study released by Hewitt Associates. According to the research, employees who do not contribute to their 401(k) plan can expect to replace as little as 52 percent of their annual preretirement income when they retire.
Why is this such a big problem? Because most people need between 80% and 120% of their pre-retirement incomes to make it through retirement. 52% isn't even close to these numbers.
So, the question is, how many people aren't contributing to their 401ks? Unfortunately, it's a high number:
Shockingly, Hewitt said 30 percent of employees who participated in the study said they do not contribute to their 401(k) plan.
Yikes! That's about all I can say. 30%????!!! Wow!
But for those of us who do contribute to our 401ks, this piece has good news:
In general, Hewitt principals say that employees who do contribute to their company's 401(k) plan can usually replace nearly all — 98 percent — of their annual preretirement income through a combination of 401(k), pension, and Social Security income.
Just another reason to contribute to your 401k. I contribute the maximum to my 401k and have done so for years now -- and it's built into a pretty nice nest egg.
For more on 401ks and retirement, see these links:
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