Grant Soliven Column: Why Your Retirement Plan May Not Be Right For You | Columns

Do Retirement Plans Work for the American Investor?

One of the nation’s largest investment firms, Vanguard, analyzed data from 4.7 million of their defined contribution plans and found in its “How America Saves 2021” report that the average balance of 401(k ) reached $129,157.

As more and more people gain access to pension plans, we hope to see this number increase. That said, there’s more to the health of your 401(k) than just value. Asking critical questions and understanding tax diversification should also be considered.

We find that too often investors give their uninterrupted attention to their 401(k) account balance. Focusing only on this measure can mislead an individual and cause them to take the wrong tax and investment measures. Accumulated savings are only one measure of success. Consider a few other essentials by asking the following questions: Are you saving enough? Do your investments match your long-term risk tolerance or do you let your emotions guide your decisions? What will be the tax implications down the road when I start receiving distributions for income?

When considering more than one factor, let’s use health and weight to drive the point home. People often focus on reading the number on the scale without considering other vital measurements such as waist measurement and blood pressure. Yet all of these components affect overall health.

When you contribute to our 401(k) plans, we can easily see the amount of savings we have accumulated and projected retirement income through our 401(k) plan website. It sounds like a handy feature; however, this system does not explain how the income is generated, nor does it reflect the future taxation of these assets.

For example, under the current tax code, many people use the Roth option in their 401(k) plan. This means that their contributions are invested in a bucket that will grow tax-free and be distributed tax-free. So while the tools are nice to look at, they don’t give us complete data, which is like using the weight on a scale as your only guide to health. We can all agree that’s a bad idea, and not having an annual checkup or professional medical opinion could spell disaster later on.

Legislators created the 401(k) to give individuals the ability and responsibility to save for their future. And while some may have lower balances due to different spending habits, those of us with disciplined approaches and focus have healthy, successful 401(k) plans.

If you are reading this article, you are not average! You are unique and have individual goals and a vision for retirement. Academics dwell on average lifespan, average income, average returns, etc. Averages are valuable for national studies, but they don’t represent the lives of many people reading this column.

Focus on your dreams, your situation and your needs, and never forget to ask the questions we asked earlier. If you need a team to help you assess where you are or a guide to show you where to go next, please call Financial Enhancement Group.


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