As a pilot, you have many factors to consider when planning for your retirement; 401(k), pension (if retired military or if PBGC through an airline), Social Security and any personal IRAs or savings and taxable investment accounts.
In most pilot contracts, the airline makes large contributions to your 401(k), but it is also important to contribute a percentage of your own pay and to increase contributions in correlation with earnings increases.
Auto-Increases to Contributions
Unfortunately, many individuals forget about or ignore retirement planning when a salary increase, raise and/or taxable bonus comes into play—and this oversight can cost tens or hundreds of thousands of dollars when they reach retirement.
Until recently, increasing contributions to a 401(k) plan required manual changes on your part, or a conversation and form submission in your HR department. Now, however, many employers offer 401(k) contribution auto-increases, which kick in annually at a specified percentage rate. This process will automatically continue until you max-out your contribution.
Here are three benefits to adding an auto-increase to your 401(k) contributions:
1. You won't forget
Or, rather, it won't matter if you do. Consider that a person making $200,000 per year and contributing 5%, saves $10,000 a year. Imagine how that adds up when that individual's salary has increased to $250,000 or more. If automatic increases were put into play, that amount would increase exponentially.
2. Adequately fund the entirety of your retirement
The good news is that life expectancies continue to go up—the risk being that you may have to depend on your retirement nest egg for years or decades longer than previous generations needed to plan. Automatic increases to your 401(k) are one way to ensure you meet or exceed current retirement savings goals.
3. Save on taxes
Traditional 401(k) contributions are taken out before taxes, which is a major bonus at tax time. This is especially true for those in higher tax brackets where every tax benefit counts.
Not sure if you are optimizing your current 401(k) contributions? Download and complete the Personal Analysis Questionnaire to see what retirement might look like for you and your family.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.