When Your 401K Maximum Balance Won’t Be Enough

by Fern LaRocca CFP®

in 401K

401k maximum

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Many people are sweating over the fact that their 401K maximum balance at the end of their working years won’t be enough to support the lifestyle that they thought they would have. Let’s not dwell on what you don’t have but let’s discuss some of the options that you do have. I don’t think it helps to pretend that you will worry about that when the time comes- if it ever does. The time to prepare for the shortage is now—while you are working. Let’s take a look at some of the common options that you will have:

Get creative about working part-time during retirement. Most people only have to replace 25% of your current earned income. If so what could you do for 25% of that time and enjoy. You will find that there are more opportunities outside of your current career track that exists and would be even more enjoyable.

Start a business. I am not talking about creating the next Apple Computer, but you could do some consulting, writing, teaching, etc. to earn extra income and not work for someone else.

Are you concerned that your social security will be taxed if you work into retirement? Yes, that is true. But you have to figure that it is also additional income net of tax. It is income you need to supplement your retirement so don’t let the tax liability worry you.

Hold off of taking that early social security at 62 especially if you have the long life genes. If you start taking the higher amount at age 70, by the time you are 78 you will have made up all the lost income from age 62 to age 70 and more.

You are forced to retire at 62 and you don’t have enough income to live on so that social security looks tempting. Don’t do it! Spend down the IRA, investments, 401k maximum balance or other resources. Why? Because those resources have the opportunity to make more money, the social security income will never go up past the rate of inflation.  Is that gambling? No, it is just a calculated risk assessment.

Lifestyle changes, part-time employment or self employment, making the right income choices including social security can make revive any retirement plan.   Even if your 401k maximum balance isn’t what you had hoped for, you do have several options in retirement to make your money last.

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