That special time at work is nearly upon us: Open enrollment period! Every September, October, and November, workers across the country sift through a sea of forms to select their benefit options for the year ahead. Most of the attention goes to various health insurance policies. But you can use open enrollment period as an occasion to think through your retirement savings plan as well.

Are you saving enough?

Investment returns go up and down. Financial markets and the global economy ebb and flow. There’s not much you can do about either of those things. The amount you contribute to a retirement savings plan like a 401(k) or IRA, however, is in your hands.

But how much is enough?

The answer is different for each person. There’s a simple place to start, however — and that’s with the company match.  If your employer matches your 401(k) contribution, put enough money into your account to get the full match. Doing this can help as you work to reach your financial goals. In fact, a recent study we conducted found that one in four employees don’t save enough to get their full company match. On average, those who didn’t save enough to get the full company match left $1,336 of free money on the table each year.1

Save even more.

Already maxing out your employer’s match? Good. Now it’s time to gradually increase your contributions. Many plans offer a way to boost contributions automatically on a schedule you set, whether it’s monthly, quarterly, or annually. Even saving 1% more every year can help make a big difference in your account balance after 10 or 20 years.

If saving more in your company’s plan isn’t an option, you could start driving your dollars into another account, like a traditional IRA or Roth IRA. One of the main differences between a traditional IRA and a Roth IRA has to do with when you pay the taxes on your contributions.

With a traditional IRA, you make contributions directly to your IRA custodian, who will hold and invest your money according to your instructions. Depending on your income level, you may be able to deduct some contributions from your annual income tax bill when you file taxes for the year. Know, however, that there are limits on how much you can deduct each year.

Keep in mind that you’ll be taxed on any distributions from a traditional IRA if you previously claimed those dollars as a deduction. However, consider whether you expect to be in a lower tax bracket once you retire, as this could help you pay less in taxes on this money than if you had to pay taxes now.

If you qualify for a Roth IRA (which depends on how much you bring home each year), you can make your contributions with after-tax dollars, which means you’ll pay your taxes up front. When you make withdrawals from the account in retirement, you won’t pay taxes on your contributions or their earnings, as long as the withdrawals meet certain requirements.

Getting advice could help.

The same report we mentioned earlier had another interesting finding: Employees across all age and income levels who use advisory services are less likely to miss out on their employer match compared to employees not getting any advice.

A recent study from the Life Insurance and Market Research Association (LIMRA) echoed our findings. Key takeaways from the LIMRA study include:

-Households using financial advisors are three times as likely to have $250,000 or more in retirement savings.

-They’re also twice as likely to have $100,000 or more compared to households not using a professional advisor.2

This open enrollment period, think beyond the health insurance policy basics. Use this time to reconsider your retirement savings strategy and figure out how to drive more dollars into your retirement savings accounts. Not sure where to begin? Consider reaching out to a financial advisor. It could help make a difference in your future.

 

1 (May 2015). Missing out: How much employer 401(k) matching contributions do employees leave on the table? Financial Engines. Retrieved September 5, 2017, from https://financialengines.com/education-center/wp-content/uploads/2016/07/Financial-Engines-401k-Match-Report-050615.pdf
2 (May 2015). Matters of Fact – Consumers, Advisors, and Retirement Decisions (and Results). Life Insurance and Market Research Association. Retrieved September 5, 2017, from http://www.limra.com/uploadedFiles/limra.com/LIMRA_Root/Posts/PR/_Media/PDFs/Facts-about-retirement-decisions.pdf
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