Monday, July 29, 2013

Should You Have a 401(k) or a Retirement Plan?

Should You Have a 401(k) or a Retirement Plan?

One could safely argue that nearly every American worker contributes to a 401(k) or similar plan.
In fact, that is exactly what so-called financial experts recommend we all do in order to ensure that we’ll have a financially successful retirement, isn’t it? So why, then, do an ever-increasing number of folks who are retiring (or nearing retirement) fall significantly short when it comes to their financial readiness?

Of course, several reasons may account for this unfortunate situation. Maybe folks aren’t saving enough money in their 401(k)s? Or maybe they are choosing the wrong funds in which to invest their money? Or maybe their particular 401(k)s aren’t that great? And so forth. In my humble opinion, however, every reason you can name really amounts to a symptom of one underlying issue: the absence of a real retirement plan.

Although many equate signing up for a 401(k) at work as retirement planning, in the true sense of the term, it’s not. Retirement planning starts with understanding and clarifying your goals, evaluating alternate courses of action, and coming up with the most effective means to get you to your intended destination. Then, on an ongoing basis, reevaluating those choices to ensure that things are moving on schedule and/or doing any needed fine tuning. In my experience – from the folks I have spoken with – this doesn’t usually happen when people sign up for 401(k)s.

Am I suggesting that contributing to your 401(k) is a bad idea? Obviously, it would be irresponsible for me to make that definitive statement without first examining your specific 401(k) plan. On the other hand, are you sure that your 401(k) is what will deliver the retirement you desire? How did you reach that determination? Was it through careful consideration – or a guess? I think you get my point.

Happy retirement!

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