How much of my retirement income should be guaranteed versus invested in the market?

A common approach is ensuring guaranteed sources—Social Security, any pension, and in some cases fixed annuities—cover your essential expenses, while market-based investments fund discretionary spending and growth. The right mix depends on your specific numbers, but this framework gives you a starting point.

Why the “Pay-Check, Play-Check, Care-Check” Framework Works

If you’re five years from retirement with $300,000 or more saved, you’re probably thinking about how to turn that nest egg into reliable income. One question comes up more than any other: how much should I lock into guaranteed income, and how much should stay invested?

The answer isn’t one-size-fits-all, but a helpful way to think about it is the “Pay-Check, Play-Check, Care-Check” framework.

Pay-Check covers your essential monthly expenses—housing, utilities, food, insurance, healthcare premiums. These are the bills that don’t go away whether the market is up or down. Social Security and any pension you have form the foundation here. If those don’t fully cover your essentials, you might consider adding a fixed annuity or other guaranteed income source to close the gap.

Play-Check funds discretionary spending—travel, hobbies, dining out, gifts to family. This money can come from your investment portfolio. If the market has a rough year, you can dial back the European vacation or delay the kitchen remodel without affecting your ability to pay the mortgage or buy groceries.

Care-Check is your reserve for healthcare costs that aren’t covered by Medicare or insurance—long-term care, out-of-pocket medical expenses, or assisted living down the road. Depending on your situation, this might be funded by a combination of savings, health savings accounts, or long-term care insurance.

A Real-World Example

Let’s say your essential monthly expenses in retirement will be $5,000. Social Security will cover $3,200, and you have a small pension that pays $800. That leaves a $1,000 monthly gap.

The rest of your portfolio—let’s say another $200,000—stays invested in a diversified mix of stocks and bonds. That money funds your discretionary spending and continues to grow over time. If the market drops 20% one year, your essential expenses are still covered. You might skip the cruise or postpone a big purchase, but you’re not forced to sell investments at a loss to pay the electric bill.

Who This Applies To

This framework works best if you’re within five years of retirement and have a clear picture of what your expenses will look like. It’s also helpful if you’re someone who worries about market volatility but still wants growth potential.

If you’re already retired and drawing from your portfolio, you can still apply this thinking—it’s never too late to build more certainty into your income plan.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

How much of my retirement income should be guaranteed versus invested in the market?

A common approach is ensuring guaranteed sources (Social Security, any pension, and in some cases fixed annuities) cover your essential expenses, while market-based investments fund discretionary spending and growth — though the right mix depends on your specific numbers.

This structure — sometimes described as a “Pay-Check, Play-Check, Care-Check” framework — reduces the risk that a market downturn forces you to cut into basic living expenses. Essential costs (housing, healthcare, food) are covered by predictable income; discretionary spending (travel, hobbies) draws from the portfolio, where some year-to-year flexibility is more acceptable. The specific ratio depends on your total assets, other income, and comfort with market risk, and is worth mapping out precisely rather than guessing.

What is an “income floor,” and why do some advisors recommend building one?

An income floor is the amount of guaranteed income needed to cover essential expenses, built from sources like Social Security, a pension, or an annuity, so basic needs are met regardless of market performance.

The idea behind an income floor is to remove essential living expenses from market risk entirely, so a downturn affects only discretionary spending rather than your ability to pay for housing, food, and healthcare. Not everyone needs a fully guaranteed floor — it depends on your other assets and comfort with risk — but it’s a useful concept to evaluate against your specific situation.

Can I combine an annuity with a traditional investment portfolio, or do I have to choose one approach?

Most retirement income plans combine both — using an annuity or other guaranteed source for essential expenses while keeping a diversified portfolio invested for growth and discretionary spending.

These approaches aren’t mutually exclusive, and combining them is more common than choosing one exclusively. A typical structure uses guaranteed income to cover non-negotiable expenses, while the remaining portfolio stays invested for growth, inflation protection, and flexibility. The right mix and allocation between the two depends on your total assets, other income, and personal risk tolerance.

Other Related Articles on retirement consultant

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party. The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency.

The S&P 500 index tracks the stock performance of about 500 of the largest US public companies. Investors cannot invest directly in an index. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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How to Prepare for Retirement in 5 Years: The August Financial Checkup You Can’t Skip

Americans believe they will need $1.26 million to retire comfortably, yet many of us aren’t sure if we’re on track to hit that target. Transitioning from saving to living off your savings is one of the most stressful challenges retirees face. Five years away from retirement, this August is the perfect time to conduct a full financial checkup.

Understanding how to prepare for retirement requires more than checking your account balance. Our generation stands at a unique position regarding retirement planning in Fresno CA available with wealth building. This piece will walk through assessing your current retirement readiness, updating your budget and tax strategy, and taking specific actions to strengthen your retirement planning before you leave the workforce.

Assess Your Current Retirement Readiness

Running the numbers is where retirement planning gets real. Calculate your income replacement needs first. Most people require between 55% and 80% of their pre-retirement income to maintain their lifestyle after they stop working. Your salary level determines your exact target. Plan to replace around 80% of that income if you earn $50,000, while someone earning $200,000 might want closer to 60%.

Your savings should cover about 45% of your pre-retirement income. Social Security and pensions fill the gap. You need to save 15% of your pre-tax income annually to hit this target, including any employer match. Another measure suggests having 12 times your pre-retirement salary saved.

Update Your Retirement Budget and Tax Strategy

Your budget will move once you stop working. Retirement planning means preparing for expenses that either increase or appear for the first time.

Healthcare becomes your largest variable cost if you retire before 65. Marketplace premiums between $1,000 and $1,800 monthly await a 62-year-old before subsidies without employer coverage. Your income determines subsidy eligibility. Subsidies phase out above $62,600 for single filers in 2026. Managing your Modified Adjusted Gross Income through withdrawals from Roth accounts instead of traditional IRAs can keep you under subsidy thresholds. Note that 92% of marketplace enrollees reduced their premiums through tax credits in 2024.

Take Action to Strengthen Your Retirement Plan

Maximizing contributions should top your action list. If you’re 50 or older, catch-up contributions let you add $8,000 beyond the standard $24,500 limit in your 401(k) and bring your total to $32,500 for 2026. Those between 60 and 63 can contribute even more through super catch-up provisions, allowing up to $35,750 total if your plan permits. You can add $1,100 on top of the $7,500 base limit for IRAs and reach $8,600 annually.

One critical change affects high earners. Your catch-up contributions in 2026 must go into a Roth account as after-tax dollars if you earned more than $150,000 in 2025. Check your 2025 W-2 Box 3 to determine if this applies to you.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

Other Related Articles on retirement planning

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

A Qualified Charitable Distribution (“QCD”) is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (“RMDs”) for the year, as long as certain rules are met. Some charities may not qualify for QCDs. First consult your tax advisor or the charity for its applicability. Tax loss harvesting is a strategy that may help minimize the amount of current taxes you have to pay on your investments by choosing to sell an investment at a loss. It is only appropriate for certain taxpayers in certain scenarios. Please review your retirement savings, tax and legacy planning strategies with your legal/tax advisor before attempting a tax loss harvesting strategy.

Any comments regarding safe and secure investments and/or guaranteed income streams refer only to fixed insurance products overseen by state insurance regulators and not any investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

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Retirement Blunders to Avoid That Could Wipe Out Your Savings in 2026

Common retirement blunders devastate the financial security of many Americans. Many people claim their benefits at 62, which results in reduced monthly payments for the rest of their lives. Your retirement consultant in Fresno CA will explore how nearly 70% of people will need some form of long-term care, yet most fail to plan for these expenses. The average woman turning 67 may spend about 20 years in retirement, and this makes planning significant.

Early Planning Mistakes That Set You Up for Failure

One of the most damaging retirement mistakes you can make is to postpone your contributions. Start saving at 25 and contribute $3,000 each year for just ten years, then stop. Your $30,000 grows to about $315,500 by age 65 (assuming 7% growth each year). But delay until 35 and save that same amount for 30 years. You’ll contribute an additional $60,000 and only reach about $306,000. Time matters more than the total amount you deposit.

Most workers save nowhere near what they should. Financial experts suggest saving 15% of your pre-tax income to accumulate 10 times your salary by age 67. Yet only 43% of American workers participate in a retirement savings plan. This gap creates a crisis you can predict.

Investment and Money Management Blunders

You tap retirement accounts before age 59½ and you make one of the priciest retirement blunders. The IRS imposes a 10% early withdrawal penalty on top of regular income taxes. To cite an instance, withdrawing $10,000 from a traditional IRA could net you only $6,400 after federal taxes, state taxes, and penalties. The damage extends beyond immediate costs. That same $10,000 left untouched for 20 years with a 6% annual return would grow to more than $32,000.

You claim Social Security at 62 and your monthly benefit drops by up to 30% compared to waiting until full retirement age. Delay until age 70 and your payment increases by 8% each year due to delayed retirement credits. The break-even point falls in the late 70s or early 80s. This makes patience rewarding for those with average or above-average life expectancy.

Long-Term Financial Oversights That Drain Your Nest Egg

Healthcare expenses represent one of the most underestimated retirement mistakes to avoid. The average couple needs $345,000 to cover medical expenses in retirement, excluding long-term care. If you have that figure, it stands at $172,500. Medicare covers only about two-thirds of your costs and leaves you with big out-of-pocket expenses for premiums, copays, and deductibles.

Long-term care planning is another retirement blunder to avoid. Nearly 70% of people turning 65 will need some form of long-term care. A semi-private nursing home room averages over $111,000 a year. Assisted living exceeds $70,000 per year. Premiums become unaffordable or coverage unavailable after age 70 if you don’t purchase insurance in your 50s.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

Other Related Articles on financial management services

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency

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Can You Retire with 1 Million? The Honest Truth About What It Buys in 2026

Can you retire with 1 million dollars, or has this retirement goal become outdated? Americans in a recent Fidelity survey said they expect to have saved around $1.4 million to retire, but retirees report having closer to $490,000. Your retirement plan consultant in Fresno CA, knows that this gap reveals a disconnect between expectations and reality. Healthcare costs alone present a most important challenge, as a person retiring in 2025 may need $172,500, on average, in after-tax savings to cover medical expenses throughout retirement. Inflation running in the 3% range compounds these concerns, especially when 37% of Americans say rising prices are one of the biggest challenges in preparing for retirement. You need to understand how much to save for retirement.

What $1 Million Actually Buys You in Retirement Today

A million-dollar retirement portfolio following the widely-used 4% withdrawal rule generates $40,000 annually, or $3,333 per month before taxes. When you add average Social Security benefits ranging from $1,700 to $3,000 per month, your total monthly income lands between $5,033 and $6,333. That might sound adequate until you get into actual spending patterns.

Americans aged 65 and older spent around $5,100 per month in 2024, totaling more than $61,000 per year. Housing claimed the largest share at $1,849 per month. Transportation followed at $795, and food at $662. Healthcare costs hit $650 per month. These four categories alone consume around $3,956 each month.

5 Critical Factors That Determine If $1 Million Is Enough

Whether you can retire with 1 million depends less on the dollar amount and more on five interconnected variables that shape your financial reality.

Retirement timeline is the first critical factor. Half of American men reaching 65 will live to at least 85, and half of women to 88. Planning for a 30-year retirement requires different math than a 20-year horizon. Healthy 65-year-old men face a 20% chance of reaching 93, then stretching that million across nearly three decades.

Guaranteed income streams alter the equation. Social Security replaces 40% of pre-retirement earnings and provides $2,071 monthly on average as of January 2026. Delaying benefits until age 70 increases payments by 8% annually, reducing portfolio dependency. Those with pensions gain additional stability and cover fixed expenses without market exposure.

Proven Strategies to Make Your $1 Million Last

Strategic moves separate retirees who stretch their savings from those who deplete them too early. Delaying Social Security until age 70 increases monthly payments by 8% each year beyond full retirement age. This turns a $2,000 monthly benefit at 67 into $2,480 at 70. The higher earner waiting maximizes survivor benefits for married couples and potentially adds $80,000 to a spouse’s lifetime income.

Flexible withdrawal strategies outperform rigid approaches. Morningstar’s 2026 research suggests a 3.9% starting withdrawal rate supports 30-year retirements. This approach adjusts spending based on portfolio performance rather than fixed inflation increases. Dynamic methods that reduce withdrawals during market downturns achieve 7% to 13% higher ending balances compared to static strategies.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

Other Related Articles on retirement planning

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

A Roth conversion may not be suitable for your situation. The primary goal in converting retirement assets into a Roth IRA is to reduce the future tax liability on the distributions you take in retirement, or on the distributions of your beneficiaries. The information provided is to help you determine whether or not a Roth IRA conversion may be appropriate for your particular circumstances. Please review your retirement savings, tax, and legacy planning strategies with your legal/tax advisor to be sure a Roth IRA conversion fits into your planning strategies.

This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency

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401K Contribution Limits 2026: New Rules That Could Save (or Cost) You Thousands

The 401k contribution limits 2026 are rising to $24,500, marking a $1,000 increase that could substantially boost your retirement savings. This change offers real opportunities to maximize our nest eggs for those of us planning ahead.

Our financial planner in Fresno CA understands that catch-up contributions for workers aged 50 and over are increasing to $8,000, up from $7,500 for 2025. There’s a major catch though: if you’re a high earner making $150,000 or more in FICA-taxable earnings, your catch-up contributions must now go into a Roth 401(k) with after-tax dollars.

2026 401(k) contribution limits: what’s changing

Employees under age 50 can defer up to $24,500 in salary to their 401(k), 403(b), or governmental 457 plans. This represents a $1,000 jump from the 2025 limit of $23,500.

The catch-up contribution rises to $8,000 for workers aged 50 and older, up from $7,500 in 2025. This brings the total possible employee contribution to $32,500 for this age group. You can take advantage of an even higher super catch-up contribution of $11,250 if you fall within the 60 to 63 age range. This provision allows you to contribute a total of $35,750 in employee deferrals alone.

The new Roth catch-up rule for high earners

A most important rule change affects how we make catch-up contributions if our earnings exceed certain thresholds, starting in 2026. If you’re 50 or older and your Federal Insurance Contributions Act (FICA)-taxable earnings are $150,000 or more, any catch-up contributions to your 401(k) will have to be made to a Roth 401(k) with after-tax dollars.

The rule is based on your prior year W-2 form from the employer sponsoring the plan. The change applies to you for the 2026 tax year if you earned $150,000 or more for tax year 2025. Check Box 3 on your W-2 to determine your FICA wages.

 

Smart strategies to maximize your retirement savings in 2026

Maximizing your retirement savings requires more than knowing the 401k contribution limits 2026. Start by contributing early in the year. The longer our money stays invested, the more it benefits from compound returns.

Capture the full employer match first. Companies often match 50 cents or $1 for each dollar you contribute, up to 6% of your total pay. This is money we don’t have to supply ourselves.

Work toward saving at least 15% of your income each year, including employer contributions. If that seems steep, increase your contribution rate by 1% each year or whenever you receive a raise.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

Other Related Articles on retirement consultant

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party. The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

This is not endorsed or affiliated with the Social Security Administration or any U.S. government agency.

The S&P 500 index tracks the stock performance of about 500 of the largest US public companies. Investors cannot invest directly in an index. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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How to Build Guaranteed Retirement Income After Your Pension Disappears

Nearly 50% of households nearing retirement may not be able to maintain their standard of living by 2025, mainly because traditional pensions have disappeared. More than half of all US retirement assets are now in self-directed plans like 401(k)s and IRAs. This change means we can no longer rely on employer-guaranteed income for life. Our generation stands at a unique position regarding retirement planning in Fresno CA available with wealth building.

Understanding Why Pensions Disappeared and What It Means for Your Retirement

The transformation from pensions to 401(k)s began in the 1980s when companies started moving away from defined benefit plans. By 2022, only 15% of private industry workers had access to pensions, down from approximately 50% in the mid-1980s. Conversely, 69% of private sector workers now have access to defined contribution plans.

Companies made this move due to economic strain. Pensions required employers to fund predetermined retirement benefits for life and created unpredictable costs as people lived longer. The administrative complexity and high management expenses became unsustainable. Major corporations like General Electric and IBM froze their pension plans, with GE wanting to reduce its underfunded pension deficit by as much as $8 billion.

Your Main Options for Creating Guaranteed Retirement Income

Fortunately, several proven methods exist to replace pension-like income streams. Each option provides different levels of guarantees and growth potential.

Annuities represent the closest modern equivalent to traditional pensions. Fixed annuities guarantee a specific interest rate on your investment. Some products provide rates above 6.30% for five-year terms. Fixed indexed annuities link returns to market indices and protect your principal from losses through a zero-return floor. Variable annuities provide market participation through mutual fund-like subaccounts, though account values fluctuate with market performance.

How to Build Your Personal Guaranteed Income Plan Step-by-Step

Start by calculating your monthly retirement expenses. Separate them into essential costs (housing, healthcare, utilities and food) and discretionary spending (travel, entertainment and hobbies). Next, list your guaranteed income sources. Add up Social Security benefits, any remaining pension income and other reliable monthly cash flows. Subtract this total from your essential expenses to identify your income gap.

This gap represents the amount you need to cover through additional guaranteed sources. Match your essential expenses to guaranteed income first. Annuities become especially valuable for filling that shortfall if Social Security and pensions don’t cover necessities.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

Other Related Articles on retirement planning

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

A Qualified Charitable Distribution (“QCD”) is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (“RMDs”) for the year, as long as certain rules are met. Some charities may not qualify for QCDs. First consult your tax advisor or the charity for its applicability. Tax loss harvesting is a strategy that may help minimize the amount of current taxes you have to pay on your investments by choosing to sell an investment at a loss. It is only appropriate for certain taxpayers in certain scenarios. Please review your retirement savings, tax and legacy planning strategies with your legal/tax advisor before attempting a tax loss harvesting strategy.

Any comments regarding safe and secure investments and/or guaranteed income streams refer only to fixed insurance products overseen by state insurance regulators and not any investment advisory products. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC.

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401k Match Explained: Why Most People Miss Out on Free Retirement Money

Your 401k match is free retirement money from your employer, yet 25% of workplace savers aren’t contributing enough to maximize it. Millions of employees leave thousands of dollars on the table each year. More than 85% of 401(k) plans offer some type of employer contribution, and this makes it one of the most valuable employee benefits available. Your retirement consultant in Fresno CA will explore the most common matching formula provides a dollar-for-dollar match on the first 3% of your salary, plus 50 cents on the dollar for the next 2%.

What is a 401(k) match and how does it work?

A 401(k) match occurs at the time your employer contributes money to your retirement account based on the amount you defer from your paycheck. Nearly 98% of employers offer some form of matching contribution and make it a standard workplace benefit.

Employers use different formulas to calculate their contributions. With a partial match, your employer contributes a percentage of what you defer. The most common formula provides 50 cents for every dollar you contribute, up to 6% of your salary. If you earn $80,000 per year and contribute 6% ($4,800), your employer adds $2,400.

Why most people miss out on their full 401(k) match

Americans forfeit $24 billion each year in unclaimed employer contributions. Several factors explain this massive loss of retirement wealth.

Vesting schedules are the biggest problem. Employer contributions don’t become yours right away. Matching contributions must vest at least as fast as a 6-year graded vesting schedule. Millennials stay at jobs an average of 2.75 years, and Gen Z employees leave after 2.25 years. You forfeit unvested employer money when you leave before full vesting. Under a typical graded schedule, you might only keep 40% of employer contributions after two years.

Front-loading contributions is another reason people lose money. You max out your deferrals early in the year and your employer matches per paycheck. Contributions stop once you hit the limit.

How to capture your full employee 401(k) match

Maximizing your employee 401k match requires understanding your plan’s specific formula. First, review your summary plan description to identify the percentage your employer matches. If your company matches 50% up to 6% of salary, you need to contribute the full 6% to capture the maximum.

Timing matters by a lot. Most employers calculate matches per pay period rather than on an annual basis. If you contribute $3,333 monthly and max out after 6.75 months, you’ll only receive $1,350 in matching instead of the full $2,400. You prevent this loss when you spread contributions throughout the year. Some plans offer a true-up provision that settles missed matches at year-end, but not all employers provide this feature.

Conclusion

We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to see how we can help you Retire ”Your Way!”

Other Related Articles on financial management services

Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser. This commentary reflects the personal opinions, viewpoints and analyses of the author, Dale Soutas. It does not necessarily reflect the views of Foundations Investment Advisors, LLC (“Foundations”) and is provided for educational purposes only and the contents are solely maintained by and the responsibility of the applicable 3rd party . The 3rd party content is subject to change at any time without notice, and does not represent an express or implied opinion or endorsement of any specific investment opportunity, investment strategy or planning strategy. Foundations in no way deems reliable any statistical data or information obtained from or prepared by third party sources in this commentary, nor does Foundations guarantee its accuracy or completeness. No legal or tax advice is provided or intended.

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