The Need for a Supplemental Retirement Savings Account for the 401(K)

The 401(K) is a private-sector retirement saving and investment plan offered by US employers. It is a defined and tax-deferred contribution retirement plan relied upon by nearly half of workers in the retirement sector, who, amongst other things, enjoys the relative flexibility it offers.


As an employee who is 21 years or older and has completed a minimum of 12 months of service, your 401(K) can be one of the most powerful retirement security tools at your disposal. 


According to Fidelity (a brokerage firm that manages retirement plan services), a record of 441,000 accounts, mostly 401(K) under its care, have balances of $1 million or more. This high index of millionaires signals the towering saving rate of employees in the 401(K), IRA, and other employer-sponsored plans.


Like every other retirement plan, starting early with the 401(k) plan and staying consistent can result in a million dollars or more in your retirement plan balance by the end of your career.


Along with all the other data that this table reveals, the following is true that while saving up to $1 million may sound herculean, an early start with a monthly investment of as low as $150 and the best annual returns can make it happen. While this discovery is thrilling and encouraging, it also raises the question, "Why is every 401(k) account holder not a millionaire at retirement?"

The simplest answer to this is “life happens.” The plan to hit the $1 million is set; you are committed to seeing it to fruition, but then you get laid off, an emergency medical expense comes up, or a severe injury renders you incapable of working.

When one’s only source of savings and investment is the 401(k) and an unexpected need that requires urgent attention arises, the only line of action would be resorting to this retirement plan. Unfortunately, any withdrawal from the 401(k) account by a holder below 59 ½  years attracts high taxes and a 10% penalty; this is the other side of the coin that usually chokes the $1 million or more retirement plan dream.

While the benefits of using the 401(k) account are enormous, it allows flexibility, easy payment (through direct-payroll deductions), amazing investment returns, and, paramountly, a tax advantage, as the contributions are taken out of your paycheck before the income tax. 

However, channeling all savings and investments into this retirement plan while relying on the rest of their monthly income for day-to-day sustenance is risky, as there are too many uncertainties in life to bank on survival and retirement plans.

For ages now, uncertainties have been accepted as an integral element of simply staying alive. Unforeseen circumstances like a chronic disease, an accident, a court case, and even a child's lofty ambition might require more funds than the rest of your monthly paycheck can provide. 

If all you have is split between your pocket and the 401(k), you are probably setting yourself up for a monumental financial collapse.

By preparing for uncertainties and other priorities outside your 401(k), you are better positioned to let your 401(k) grow throughout your career to reach that 1 million dollar milestone.

Retirement security is amongst the best investments any employee can make. For a 21-year-old who is just starting his career journey, 40 or more years might seem a far way off. This is why planning for retirement is usually procrastinated by many until the "rush hour." 

However, since "the easiest way to make your dream come true is to start early," an early start with an investment plan like the 401(k) will enable you to achieve your retirement goals. For those who are yet to start, "it's never too early to begin," hence starting today and staying committed to the goal will equally guarantee a secured retirement. 

Nevertheless, to make the 401(k) plan work best for you, have it as part of a balanced financial plan; have a supplemental retirement savings account, and your journey to retiring a millionaire will be smooth.

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