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When you close your eyes and envision retirement, what images dance through your mind? Is it the allure of financial freedom, the ability to indulge in life’s pleasures without constraints? Perhaps it’s the anticipation of quality time spent with loved ones, unburdened by work commitments. While these dreams might paint the ultimate picture, it’s equally important to consider the route that takes you there. For a significant portion of Americans, the answer lies in their 401(k) or qualified retirement plans. As we mark National 401(k) Day, let’s delve into the significance of 401(k) plans, their impact, and the ways to harness this invaluable resource.

Let’s journey back in time to an era when Defined Benefit plans, commonly known as pensions, stood as the primary retirement vehicle. These arrangements, struck with employers, promised security in return for dedication and tenure—a safety net that cradled retirees throughout the mid-20th century. However, the landscape has since changed. By the 1990s, the reins were handed to 401(k) plans or Defined Contribution plans, and their prominence persists today. What does this all mean? The responsibility to save and secure a prosperous retirement now rests with you, the individual, not the employer. The path to financial security in retirement now lies in your hands. The first step? A commitment to consistent and substantial savings.

Embracing this task is indeed a challenge, but it’s a challenge with immense rewards. The authority and autonomy to shape your financial future are privileges often taken for granted. However, action is imperative—and National 401(k) Day serves as an excellent reminder. Let’s explore some reasons why regular contributions to your retirement plan are advantageous:

  • Convenience: Once you’ve decided on the percentage of your earnings dedicated to retirement, the contributions are seamlessly deducted from your paycheck. It’s a hassle-free process.
  • Compounding Magic: The marvel of compounding can transform a modest investment into a substantial sum. It is magnified with time. Initiate early to harness its full potential.
  • Tax Advantages: Participation in your employer’s retirement plan offers a means to decrease federal income taxes. Opting for pretax contributions saves you current income tax on the funds entering your account. Taxes are deferred until withdrawal in retirement.

For most Americans, their retirement plan is their most significant asset. In honor of National 401(k) Day, I extend a challenge: If you’re not yet enrolled in your company’s retirement plan, seize the opportunity, and enroll today! And if possible, consider increasing your retirement contributions—especially following a raise or bonus. If your employer offers a matching contribution, aim to contribute at least the minimum amount required for the full benefit. Often, it’s the little things in life that can make the biggest difference. This holds true for retirement savings too. For those who are already enrolled in their company’s retirement plan, I present another challenge: a 1% increase in your savings. A 1% increase may not seem like much, and that’s precisely the point. While you won’t feel a major sting when you get your next paycheck, your investments will benefit over the long run.

Imagine your retirement once more. The dreams of thirty years filled with golf and sun-kissed beaches still hold their allure. Yet, let’s interlace those visions with a consideration of the path to get there. For many, the journey to a fulfilling retirement depends on fully harnessing the potential of the 401(k) plan. Remember, financial consultants are at your disposal to ensure your readiness for retirement. Reach out, connect with us, and embark on your financial journey with confidence!

– Kenji Noguchi
Financial Fitness Consultant

This information does not constitute legal or tax advice. PCIA and its associates do not provide legal or tax advice. Individuals should consult with an attorney or professional specializing in the fields of legal, tax, or accounting regarding the applicability of this information for their situations. Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite 150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Certain services may be provided by affiliates of PCIA.