One Easy Way To Boost Your 401(k) Account, Starting Now

Nearly every week I receive a press release from some organization bemoaning the fact that millions of Americans aren’t saving enough for retirement.

What these perennial items don’t mention is that the burden of saving for retirement is in the hands of future retirees like never before since the end of World War II. Defined-benefit pensions, which used to be automatically funded by employers, are largely extinct, unless you’re in the public sector or are lucky enough to be employed by a company that still offers one.

For far too many, the highly-flawed defined-contribution “system” of 401(k)s, 403(bs) and 457 plans has become a poor substitute for pensions. No employer is required to offer them, much less fund them. And if you don’t contribute — or tap the plans for emergencies — you just dipped into your retirement kitty and are destined to have a lower standard of living in retirement if you don’t replace the funds.

Unfortunately, Americans are increasingly withdrawing money from 401(k)-type plans like they are ATMs. A survey by Fidelity showed that “the share of plan participants withdrawing money from their plan more than tripled between 2018 and 2023, rising from 2.1% to 6.9%. Another survey from Vanguard reported that hardship withdrawals doubled in a four-year span, climbing from a monthly rate of 2.1 transactions per 1,000 participants in 2018 to a rate of 4.3 transactions in 2022.”

“Participants who withdraw plan funds to cover non-retirement expenses,” notes the Pension Rights Center, “no matter how justified, are shortchanging their future. Every dollar withdrawn will no longer be in the account where it can grow tax deferred. That lost principle, combined with the loss of potential interest and investment gains over what could be years or decades, won’t be there for them when they need it in retirement. Some who withdraw assets could see their account balances reduced by thousands of dollars, tens of thousands or even more.”

What You Can Do Now To Build Your Retirement Nest Egg

What’s the simplest way to address retirement savings shortfalls? Keep investing in your defined contribution plans on a regular, automatic basis and always take your employer’s matching contribution. It’s 100% return on your investment.

Also supplement your kitty with Health Savings Accounts and Roth 401(k)s or IRAs. And if you do nothing else, set up an emergency savings fund in an insured money market account.

Rainy days happen more often than you think. Make a solid action plan to pay yourself first in the coming year by setting aside money for short- and long-term expenses.

By John F. Wasik, Contributor