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Here’s Why an Employer-Sponsored 401(k) Is Not Enough

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401(k)s allow you to save up for retirement without the immediate burden of taxes.

But have you ever wondered if the amount of money in your 401(k) is enough? The easy answer is no, it’s not nearly enough.

Here are some significant drawbacks of having a 401(k) as your only fallback option.

A Range of Limitations

Let’s say you don’t have a ton of expenses and want to put a large amount of your salary toward your savings. Does the 401(k) allow you to do that? No. Simply put, there are contribution limits placed on it by IRS regulations.

For instance, this year, your maximum contribution is $19,500 regardless of how much you’re earning. So, the more you make, the less your rate of savings is.

Additionally, it places limits on your options for mutual funds. This means you may be losing the opportunity to invest in funds that perform well on the market. 

Plus, if you’re an individual who doesn’t know much about investing, you’re bearing all of the risks alone, which could cost you your retirement savings.

Is It Really the Gold Egg You Think It Is?

Assuming you’ve been putting the maximum amount in your 401(k), will it allow you the luxurious retirement you planned? It most likely won’t. Because we must take into account the growth rate of inflation.

Whatever you’ve saved today is worth a lot less, even five years down the line.

Additionally, taxes will become an issue. While your 401(k) allows for tax-deferred growth, at some point, this will backfire.

Because when you retire and finally start withdrawing your savings, you’ll have to pay taxes on these withdrawals.

And sadly, these taxes will be based on the current income tax rate, which will be higher than when that money was saved.

You’re Paying More Than You’re Saving

All employer-sponsored plans have administrative fees attached to them; some of these are actually hidden. There are trustee fees, bookkeeping fees, and other legal fees.

And these are usually passed on to the employee. In some cases, these fees can erode more than half of your total savings, which sort of defeats the whole purpose of saving.

And whatever left is further spent on mutual funds. So you’re paying for the specific investments you choose within your account.

This is often 2% right off the bat for each fund. And so, it follows that the returns you will receive are reduced exponentially. By your retirement, the investments would’ve eaten up the majority of your gains.

If you wish to retire at a reasonable age and live off your retirement comfortably, you need to start looking into other options as well.

One excellent option is a self-directed precious metals IRA account. If you want to learn more about these IRAs and how to invest in gold, call us today!

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