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4 Ways to Master Your 401(k) in Your 50s

The key is understanding how much you'll need in retirement

By Lee Topley

Once you’re in your 50s, you start focusing on the retirement years to come, as opposed to the day-to-day work challenges you’ve dealt with for three decades. That means it’s the ideal time to master your 401(k) retirement plan, while you can.

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Many people don’t realize that the purchase of retirement income will be the largest purchase most of us will make in our lifetimes. It’s typically two to four times larger than the expense of purchasing a home. This is where the retirement services industry has failed to properly educate most Americans, so the general understanding of how much is really needed in retirement remains an unknown for a large percentage of retirement plan participants.

Here are four things you can do now regarding your 401(k) to improve your future financial circumstances;

1. Know your ultimate goal for retirement  How much money will you need to replace 70 to 90 percent of current income? This is the main question to ask now. But many 401(k) service providers today only talk about the asset (the money in the account) and don’t really educate participants on the liability — the amount you’ll need.

401(k) participants should focus on attaining the amount needed for retirement and put together a program to reach that goal with the least amount of risk.

Remember to also consider potential health care costs, everyday living expenses and retirement lifestyle expenses when you determine your goal. And keep in mind that in retirement, you most likely will no longer be paying Social Security tax (6.2 percent of gross salary), Medicare tax (1.45 percent of gross salary) or a 401(k) deferral (often 5 to 10 percent of gross salary).

2. Save as much as possible, once your goal is defined  The retirement industry focuses a lot on the best 401(k) funds to be in and the return for the underlying investments. This is important and helps with attaining a goal. But by far, the most important aspect of having an ample 401(k) is saving as much as possible while keeping risks (and the goal) in mind. The savings will have the biggest impact on meeting the retirement objective.


Upon reaching age 50, you’re allowed to make extra 401(k) “catch-up” contributions annually ($6,000 in 2016 on top of the normal $18,000 limit). If you can put in “catch-up” money, you should.

3. Monitor your results against your goals  As your circumstances change over the years leading up to retirement, you’ll want to make adjustments to the underlying investments in your 401(k) so you stay on the path to your goal.

You might want to use an online tool such as Retirement Readiness Quiz or one from your 401(k) provider to learn how much monthly income you might receive from your plan and from Social Security in retirement. Just be sure you understand the underlying assumptions being used for these reports.

4. Get help from a fiduciary adviser  Working with an adviser who has the best interest of the 401(k) participant in mind can be a significant benefit. This pro can help with important decisions that need to be made during the years leading up to retirement. He or she can also assist with the analysis of pre-tax savings versus after-tax savings, the best time to start taking Social Security, and the best way to draw retirement income from the various options you have.

Establishing a realistic target for retirement benefits is a must. And having a solid understanding of the goal for income replacement is key — it all starts there.


Lee Topley is managing director of the Retirement Plan Consulting Group at Unified Trust Company in Lexington, Ky. The firm is a national fiduciary, serving individual investors as well as business and retirement plan investors. Read More
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