Most Americans Are Confused About 401k Retirement Plans | Senior Finance Advisor (2024)

FAQs

Should I use a financial advisor for my 401k? ›

In some instances, financial advisors can help you select the 401(k) plan that makes the most sense for your individual needs and goals. However, that doesn't mean you have to choose a financial advisor to access the benefits of an employer-sponsored retirement plan.

Not all companies offer 401(k)s, however, and millions of private-sector employees lack access to workplace retirement plans. Availability is just one problem; contributing is another. Many people who have 401(k)s put little if any money into their accounts.

Empower data shows that the majority of Americans contribute to a retirement plan (70%), though contributions vary by generation: Only 47% of Gen Zers say they save in a retirement plan, such as a 401(k) or 403 (b), compared to 75% of Millennials and 76% of Gen Xers.

The amount of cash that's in the fund when you retire is what you will receive as a pension. Thus, there is no guarantee that you will receive anything from this defined contribution plan. The fund may lose all (or a substantial part) of its value in the markets just as you're ready to start taking distributions.

If you're young and have fairly straightforward financial goals, like saving for retirement and have a retirement plan through your employer, you might not need to work with a financial planner, Ayoola says. Maybe you don't want to actively invest and are looking for a lower-cost option.

Not everyone needs a financial advisor, especially since it's an additional cost. But having the extra help and advice can be paramount in reaching financial goals, especially if you're feeling stuck or unsure of how to get there.

Traditional IRA

Traditional individual retirement accounts (IRAs) offer more flexibility and tax benefits than 401(k) accounts, making them one of the most popular 401(k) alternatives.

Reason to Forego 401(k) Contributions #1: You Have No Financial Safety Net. Putting money into a 401(k) doesn't make sense if you turn around and pull it right back out again. According to a recent TIAA-CREF survey, nearly a third of Americans have borrowed from their retirement account at some point.

How many people have $3000000 in savings in the USA? ›

There are estimated to be a little over 8 million households in the US with a net worth of $3 million or more.

One of the main benefits of a 401k is its tax advantages. Contributions reduce your taxable income for the year, leading to immediate tax savings. Additionally, the money grows tax-deferred, meaning you won't pay taxes on gains until you withdraw them in retirement.

What Makes 401ks Outdated for the Modern Workforce? Lack of portability. The 401k is set up and sponsored by the employer, which means once someone leaves the company, they're no longer eligible to contribute to their plan.

Although 401(k) plans are an excellent way to save, it may not be possible to set aside enough for a comfortable retirement, in part because of IRS limits. Inflation and taxes on 401(k) distributions erode the value of your savings.

An advisor can help you understand how your 401(k) plan works and answer any questions you may have. Select investments. A financial advisor will help you identify which funds to invest in based on your goals, and adjust those choices over time as your goals evolve or change. Keep you on track.

The Bottom Line. Managing their own portfolios may afford investors a broader array of investment options. But there are also added complexities when it comes to fees, liquidity, and other elements. Those who take the self-directed plunge should take the time to learn the tools available to help smooth out the process.

Those who use financial advisors typically get higher returns and more integrated planning, including tax management, retirement planning and estate planning. Self-investors, on the other hand, save on advisor fees and get the self-satisfaction of learning about investing and making their own decisions.