Retirement Planning Essentials: Why Your 401(k) Should Be the First Step

For many Americans, the idea of retirement can feel distant—something to worry about “someday.” But the truth is, your retirement future is built by the choices you make right now.

That’s why one of the smartest financial moves you can make—at any stage of your career—is to understand and maximize your 401(k).

Whether you're in your first job or reevaluating your savings strategy in your 40s or 50s, your 401(k) plan is likely the cornerstone of your retirement foundation.

What Is a 401(k)?

A 401(k) is an employer-sponsored retirement savings plan that allows you to set aside a portion of your paycheck before taxes are taken out. That money is then invested in funds of your choosing—often a mix of stock and bond mutual funds—so it can grow over time.

In addition to tax-deferred growth, many 401(k) plans also include employer matching contributions, which can dramatically increase your savings with no added cost to you.

Why the 401(k) Is So Powerful

1. Employer Matching One of the biggest benefits of a 401(k) is the employer match. Many employers will match a portion of your contributions—essentially giving you free money toward your retirement. If your employer offers a match, it's critical to contribute at least enough to take full advantage of it.

2. Automatic Contributions Once you set up your contributions, the money comes directly out of your paycheck. This automation makes saving easier and removes the temptation to spend what could otherwise be invested in your future.

3. Tax Advantages Traditional 401(k) contributions are made with pre-tax dollars. This lowers your taxable income today, which can reduce what you owe at tax time. You'll pay taxes later when you withdraw the money in retirement—ideally at a time when you may be in a lower tax bracket.

4. Roth 401(k) Options Some employers offer a Roth 401(k), which works the opposite way—you pay taxes on contributions now, but your withdrawals in retirement are tax-free. This can be a smart choice for younger workers or those who expect to be in a higher tax bracket later in life.

5. High Contribution Limits Compared to other types of retirement accounts like IRAs, 401(k)s allow for higher annual contributions. This makes them an ideal vehicle for long-term savings, especially for those looking to catch up or accelerate their retirement goals.

How Much Should You Contribute?

While there’s no one-size-fits-all answer, a good general guideline is to contribute between 10% and 15% of your gross income each year. If that’s too much to start, begin with what you can and plan to increase your contribution annually.

At a minimum, contribute enough to receive the full employer match if one is offered. This is free money you don’t want to leave on the table.

Understanding Investment Choices

Most 401(k) plans offer a variety of investment options, including:

• Target-date funds, which automatically adjust based on your estimated retirement year

• Index funds, which mirror market performance with low fees

• Bond and stock mutual funds, which offer a range of risk and return levels

You don’t have to be an expert to invest wisely. Many plans offer default options designed to balance growth and risk. Still, it’s wise to revisit your selections once a year or after major life changes to make sure your portfolio still aligns with your goals.

Withdrawing From Your 401(k)

You can begin taking distributions from your 401(k) without penalty starting at age 59½. Withdrawals before that age typically come with a 10% early withdrawal penalty in addition to regular income taxes.

After age 73, most people are required to take Required Minimum Distributions (RMDs) from their 401(k), whether they need the money or not. This ensures the government eventually collects taxes on the deferred income.

What Happens If You Change Jobs?

If you leave your employer, your 401(k) doesn’t disappear—but you do need to make a decision about what to do with it. Options include:

• Leaving it with your former employer’s plan (if allowed)

• Rolling it over into your new employer’s plan

• Rolling it into an IRA

• Cashing it out (generally discouraged due to taxes and penalties)

Rolling over your 401(k) into a new retirement account is usually the best way to keep your savings growing tax-deferred without interruption.

How the 401(k) Fits Into a Broader Financial Plan

While the 401(k) is a cornerstone, it’s only one part of a strong retirement strategy. It should be complemented by:

• Emergency savings

• Life insurance or income protection policies

• Additional investment or savings vehicles (like IRAs or HSAs)

• Estate and end-of-life planning

At Security National, we understand how these elements work together to protect your family and your future. While our expertise lies in insurance, pre-need planning, and protection services, we encourage clients to take a holistic approach to financial well-being—with the 401(k) as a powerful first step.

Final Thoughts: Don’t Wait to Plan for Tomorrow

Whether you’re decades away from retirement or just a few years out, your 401(k) can help create the security and freedom you want in the future. Contribute regularly, take advantage of employer matching, and revisit your plan as your life changes.

Every dollar you invest today is a step closer to a confident tomorrow.

Need help understanding how your retirement planning aligns with your overall family protection and financial goals? Reach out to a trusted financial advisor—or explore our planning tools and protection resources at SecurityNationalLife.com.