Saving for Retirement Beyond the 401(k) Account

Estate planning lawyers often tell clients during their initial consultations, or even proclaim on their websites, that if you have a retirement account at all, you are doing better than most, and that the worst mistake you can make is not saving anything for retirement. This can create an excessive sense of complacency or of despair, because whether you have a retirement account before you are old enough to think seriously about retirement is largely due to factors beyond your control, to whether well-paying jobs with employer-provided retirement savings were available to you when you were young. Anything you can save in your 401(k) account is better than nothing, and employer-matched contributions can leave you feeling confident about a comfortable retirement. As with any investment, though, it is wise to diversify. Using your 401(k) savings is more expensive than you might imagine, so if you can afford to do so, it helps to keep some of your savings in a more accessible place, like a personal savings account linked to your checking account. For help deciding how much of your income to contribute to your 401(k) and how much to save elsewhere, contact a Bronx estate planning lawyer.

The Unexpected Costs of 401(k) Accounts

The inspiring thing about 401(k) accounts is that the money is not taxable while it is in the account. Anything that you withdraw from your 401(k) account counts as taxable income for the year in which you withdraw it. Worrying about paying taxes on your required minimum distributions, when you must eventually start taking them, is truly a first world problem. Despite this, it is nice to have a savings account where you can freely spend the money, knowing that you have already paid taxes on it. The other way that 401(k) accounts can be costly is their relative lack of liquidity. Taking early withdrawals from your 401(k) comes with hefty penalties. Fortunately, there are some exceptions to this, such as if you withdraw the money to pay for long-term care insurance premiums.

Where Else Should You Save for Retirement?

The easiest way to save money and have it be immediately accessible to you is simply to put it in a savings account. Putting a small percentage of every paycheck into savings is an emotionally rewarding experience, even if the interest the money accrues is modest. Some banks even have programs where, every time you make a purchase with your debit card, your bank rounds the amount up to the nearest dollar and deposits the rounded up change into your savings account. Certificates of deposit (CDs) and savings bonds have a higher interest yield, but these are less liquid, so you should only invest in them if you also have savings that you can quickly spend if you need to.

Schedule a Confidential Consultation With a Bronx Estate Planning Attorney

An estate planning lawyer can help you make strategic decisions about saving and budgeting for retirement.  Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.

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