With National 401(k) Day Friday, now’s a good time to prepare for retirement
Start the week with Labor Day and end the week with Retirement
YUMA, Ariz. (KYMA, KECY) - National 401(k) Day began in 1996 by the Profit Sharing/401(k) Council of America (PSCA), known today as the Plan Sponsor Council of America.
The Friday following Labor Day (Monday) was chosen so employees can “start the week with Labor Day and end the week with Retirement”.
Tim Avila, wealth advisor with the Yuma Investment Group, says no one wants to work forever so the sooner you start planning for retirement, the better.
"There is Social Security, but Social Security is only going to cover about 40% of our expenses in retirement. So there's a big gap, 60%. So that's where a retirement plan, like a 401(k) comes in to fill that big gap," says Avila.
A 401(k) is a retirement plan offered through your work and the beauty of that is you contribute every paycheck, usually a certain percentage and then most companies offer a match.
"So if you contribute three, they might offer to match three. So now you doubled your money," Avila says.
Avila says the market is going to go up and down over the short term, but over the long term, it's going up and up and up.
"And so the longer we have to keep it invested and give it that chance to grow, the more it's going to grow and the bigger it's going to be," Avila continues.
There are two ways to contribute money.
First option: Your money can come out of your check pretax, so you won't pay tax today, but you're going to pay tax in the future. The IRS doesn't forget.
You can take out the money after you turn 59 1/2, not before or it could be a 10% early withdrawal penalty.
Second option: Roth IRA, a type of Individual Retirement Account that allows you to save for retirement while potentially reducing taxes.
"So that means after tax. So you pay your tax just like you do every paycheck and then the money goes in. Now that you've paid the tax, the IRS says thank you very much and we're not going to worry about it. So you have all these years for your money to grow tax-free," explains Avila.
For anybody who's young or has more than ten years to go before they retire, the Yuma Investment Group strongly recommends the Roth option.
"Because over time if you get the average rate of return which is about 7%, then your money will double every ten years," says Avila. "So for a lot of us, start in our 20s, we don't retire till our 60s. That's 40 years. It doubles once, twice, three, four times."
The Yuma Investment Group helps the companies and business owners because it's by individual company.
"And a lot of companies have plans, but they don't have a local representative. And so what happens is we meet people who say 'I don't even know who my rep is. I've never seen a rep. Never talk to anybody.' Well, we're local. We come right in the door and we have meetings with the employees, the owners everybody," Avila says.
Yuma Investment Group helps business owners themselves because they have a different fee structure through their platform.
"It's a flat fee. You kind of pay the same every year, more or less. So what we do is we can evaluate their plan, evaluate their fees for free, and see if we can save their money and most of the time, the answer is yes. And most of the time it's in the thousands," Avila continues.
Avila says if your company does not have a 401(k), they can help get them started.
"So all we need to do is get some general information. How many employees, things like that and we can make a proposal and explain everything to them," Avila adds.
If you would like more information about retirement planning, you can reach out to Yuma Investment Group.
