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This Is What Happens When You Skip 1 Year of 401(k) Contributions

Liz Smith | MAY 4, 2019

Studies show 65% of Americans are not saving enough for retirement. It can be challenging to think far ahead, but investing in retirement accounts with compounding interest is key to achieving the retirement you want. 

Working with a financial advisor can also help ensure you save enough for the retirement you desire.

Not convinced? Check out the difference it can make when you skip just one year of 401(k) contributions. 

What Could Happen If You Skip 1 Year of 401(k) Contributions

1. When You’re Just Starting Out

Between student loans and new expenses, young professionals often struggle to establish a sizable 401(k). Saving a small amount in your 20s can grow to an impressive sum by your 60s, though. 

Skipping just one year of 8% contributions while earning a $45,000 salary at 25 could cost you more than $53,000 by age 65 assuming a 7% annual rate of return. 

2. When You’re Well Into Your Career

A general rule of thumb suggests you have three times your annual salary in retirement savings by the time you turn 40. Skipping just one year of contributions this far into your career could be detrimental to your goals. Always consult a financial advisor before skipping an extended period of retirement savings.

If you make $90,000 and set aside 15% for your 401(k), that would mean missing out on over $73,000 by the time you reach retirement age if the funds are earning 7% a year. 

3. When You’re Approaching Retirement 

The closer you get to 65, the more stressful retirement planning can become and more important it is to check in with a financial advisor to make sure you're on track to meet your goals. Luckily for late savers, there is an opportunity to make additional “catch-up” contributions each year. For 2019, this shifts the maximum contribution from $19,000 to $25,000. 

If you don’t contribute the maximum $25,000 at age 55, you’ll be missing out on more than $49,000 by the time you retire assuming that same 7% annual rate of return. 

The Simple Way to Ensure You Save Enough for Retirement

If you’re having trouble developing a retirement savings strategy on your own, consider working with a financial advisor. Financial advisors will assess your current financial situation and help you craft a plan to ensure your short-term decisions don’t impact your larger financial goals. 

They know the limits, rules and best ways to maximize your savings. With the help of a financial advisor, you’ll be able to to retire when – and how – you want.

How to Find the Right Financial Advisor for You

There are likely several highly qualified financial advisors in your area, but it can seem daunting to choose one. 

This new tool makes it easy to find the right financial advisor for you. Now you can get matched with up to three local fiduciary investment advisors that have passed a rigorous screening process.

Follow These Steps to Get Matched With the Right Advisor for You

1. Simply enter your ZIP code below.

2. After you enter your ZIP code and answer questions about your financial goals, you can compare up to three top advisors local to you and decide which to work with.

3. Enjoy a better financial future!

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SmartAsset - copyright 2018

SmartAsset - copyright 2018