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Unlocking Wealth: The Power of Professional Management for Your 401(k)
In the third installment of our blog series on retirement, we will explore the advantages of professional management for your 401(k). While it's certainly possible to manage your 401(k) independently, enlisting the help of a wealth manager or financial advisor can yield significant benefits. Research indicates that professionally managed accounts can outperform those managed by individuals by 3% or more, after accounting for fees. For a 45-year-old participant, this difference could translate to 75% more wealth by the age of 65. Let’s delve into the reasons why:
1. Expert Guidance
A wealth manager or financial advisor brings wealth of knowledge and experience to the table. They can help you create a personalized retirement plan that aligns with your goals, risk tolerance, and time horizon. With their expertise, you’re more likely to make informed investment decisions that maximize your 401(k)’s growth potential.
As markets fluctuate, having an expert with ongoing monitoring and rebalancing of the different assets within your 401K helps accomplish those goals in safer, smarter ways than “setting it and forgetting it”. A financial advisor will continuously monitor your portfolio and rebalance it when necessary to maintain your desired asset allocation, in line with goals during your working, saving, and wealth accumulation years.
Additionally, as many pre-retirees are nearing or entering retirement, the process of converting your diligent savings into a sufficient stream of income to last through retirement can be daunting if taken on alone, or without proper planning. According to a McKinsey 2022 survey sampling 9000 US households, only about 13% of pre-retirees felt ‘retirement ready’ in both financial sufficiency and confidence. Proper planning, access to confidence building tools and strategies, and partnership with an expert can be a powerful solution.
2. Strategic Asset Allocation
Professional managers can ensure your 401(k) investments are properly diversified across various asset classes, such as stocks, bonds, real estate, and more non-traditional, alternative investments. They can help you achieve the right balance between risk and reward, adjusting your portfolio as needed to reflect changes in the market, the great global economy, or your personal life circumstances.
3. Tax-Efficient Exit Strategies
Navigating the complexities of tax laws can be challenging, especially when it comes to retirement planning. A professional advisor can implement tax-efficient strategies that reduce your lifetime tax burden, both now and in retirement. This might include advice on whether to contribute to a traditional or Roth 401(k), and how to manage withdrawals to minimize taxes.
For example, when referring to your Lifetime Tax Burden, a few tax efficient strategies that take advantage of today’s lower than ever tax rates are utilizing Roth Conversions, tax advantaged Charitable Giving, transitioning Roth 401(k) contributions, and more. These are a few examples that take advantage of current ‘discount’ tax rates to maximize the assets you keep, while minimizing the assets siphoned away via future, higher, tax brackets and mandatory distributions.
Additionally, as you enter retirement, typically past tax deductions valuable in reducing your taxable income may no longer be accessible. Children are no longer dependents to claim, your mortgage may be paid off, and others may no longer be applicable. Navigating this new landscape can be a bit easier, with the help of a trusted partner.
5. Wealth and Legacy Transition Expertise
Planning for the next generation, and proactive tax management of your retirement assets, go hand in hand. Working with a wealth manager who understands the importance of planning is key to success, or strife, or the next generation as they inherit assets.
6. Peace of Mind, and Transparency
Perhaps one of the most valuable benefits of professional management is peace of mind. Knowing that a seasoned professional handles your 401(k) allows you to focus on other aspects of your life without worrying about the intricacies of investment management. For minute details, such as keeping track of updates to fees associated with your 401(k) and identifying lower cost options, actively rebalancing your investment allocation during times of market volatility, or being mindful of plan providers and their respective percentage matches and maximums, confidence in your assets being well taken care of can be especially important.
Final Thoughts
A well-managed 401(k) plan can be a powerful vehicle for securing your financial future. By taking advantage of the tax benefits, employer contributions, and professional management options, you can build a substantial nest egg over time to support your retirement and legacy goals. Whether you choose to manage your 401(k) on your own, or leverage the guidance of a wealth manager, regular reviews and strategic adjustments are essential to keeping your retirement savings on track.
Ultimately, optimizing your 401(k) requires a thoughtful approach, but the payoff is well worth it. By contributing consistently, diversifying your investments, and planning for the long term, you can set yourself up for a comfortable, happy, and secure retirement.
Meet
Brian Mills
Hi there 👋🏾, I'm Brian and I am dedicated to wealth management customized to target asset protection and growth. My experience lies in providing personalized solutions for diversifying and safeguarding portfolios to address market risks.
References:
McKinsey & Company. “From saving to spending: A second front emerges in the US retirement challenge” July 2022. https://www.mckinsey.com/industries/financial-services/our-insights/from-saving-to-spending-a-second-front-emerges-in-the-us-retirement-challenge
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth, Inc. (“Savvy Wealth”) is a tech company and the parent company of Savvy Advisors, Inc, (“Savvy Advisors”). All advisory services are offered through Savvy Advisors, Inc., an investment advisor registered with the Securities and Exchange Commission (“SEC”). For the purposes of this blog article, Savvy Wealth and Savvy Advisors may be referred to together as “Savvy”.
Unlocking Wealth: The Power of Professional Management for Your 401(k)
In the third installment of our blog series on retirement, we will explore the advantages of professional management for your 401(k). While it's certainly possible to manage your 401(k) independently, enlisting the help of a wealth manager or financial advisor can yield significant benefits. Research indicates that professionally managed accounts can outperform those managed by individuals by 3% or more, after accounting for fees. For a 45-year-old participant, this difference could translate to 75% more wealth by the age of 65. Let’s delve into the reasons why:
1. Expert Guidance
A wealth manager or financial advisor brings wealth of knowledge and experience to the table. They can help you create a personalized retirement plan that aligns with your goals, risk tolerance, and time horizon. With their expertise, you’re more likely to make informed investment decisions that maximize your 401(k)’s growth potential.
As markets fluctuate, having an expert with ongoing monitoring and rebalancing of the different assets within your 401K helps accomplish those goals in safer, smarter ways than “setting it and forgetting it”. A financial advisor will continuously monitor your portfolio and rebalance it when necessary to maintain your desired asset allocation, in line with goals during your working, saving, and wealth accumulation years.
Additionally, as many pre-retirees are nearing or entering retirement, the process of converting your diligent savings into a sufficient stream of income to last through retirement can be daunting if taken on alone, or without proper planning. According to a McKinsey 2022 survey sampling 9000 US households, only about 13% of pre-retirees felt ‘retirement ready’ in both financial sufficiency and confidence. Proper planning, access to confidence building tools and strategies, and partnership with an expert can be a powerful solution.
2. Strategic Asset Allocation
Professional managers can ensure your 401(k) investments are properly diversified across various asset classes, such as stocks, bonds, real estate, and more non-traditional, alternative investments. They can help you achieve the right balance between risk and reward, adjusting your portfolio as needed to reflect changes in the market, the great global economy, or your personal life circumstances.
3. Tax-Efficient Exit Strategies
Navigating the complexities of tax laws can be challenging, especially when it comes to retirement planning. A professional advisor can implement tax-efficient strategies that reduce your lifetime tax burden, both now and in retirement. This might include advice on whether to contribute to a traditional or Roth 401(k), and how to manage withdrawals to minimize taxes.
For example, when referring to your Lifetime Tax Burden, a few tax efficient strategies that take advantage of today’s lower than ever tax rates are utilizing Roth Conversions, tax advantaged Charitable Giving, transitioning Roth 401(k) contributions, and more. These are a few examples that take advantage of current ‘discount’ tax rates to maximize the assets you keep, while minimizing the assets siphoned away via future, higher, tax brackets and mandatory distributions.
Additionally, as you enter retirement, typically past tax deductions valuable in reducing your taxable income may no longer be accessible. Children are no longer dependents to claim, your mortgage may be paid off, and others may no longer be applicable. Navigating this new landscape can be a bit easier, with the help of a trusted partner.
5. Wealth and Legacy Transition Expertise
Planning for the next generation, and proactive tax management of your retirement assets, go hand in hand. Working with a wealth manager who understands the importance of planning is key to success, or strife, or the next generation as they inherit assets.
6. Peace of Mind, and Transparency
Perhaps one of the most valuable benefits of professional management is peace of mind. Knowing that a seasoned professional handles your 401(k) allows you to focus on other aspects of your life without worrying about the intricacies of investment management. For minute details, such as keeping track of updates to fees associated with your 401(k) and identifying lower cost options, actively rebalancing your investment allocation during times of market volatility, or being mindful of plan providers and their respective percentage matches and maximums, confidence in your assets being well taken care of can be especially important.
Final Thoughts
A well-managed 401(k) plan can be a powerful vehicle for securing your financial future. By taking advantage of the tax benefits, employer contributions, and professional management options, you can build a substantial nest egg over time to support your retirement and legacy goals. Whether you choose to manage your 401(k) on your own, or leverage the guidance of a wealth manager, regular reviews and strategic adjustments are essential to keeping your retirement savings on track.
Ultimately, optimizing your 401(k) requires a thoughtful approach, but the payoff is well worth it. By contributing consistently, diversifying your investments, and planning for the long term, you can set yourself up for a comfortable, happy, and secure retirement.
Meet
Brian Mills
Hi there 👋🏾, I'm Brian and I am dedicated to wealth management customized to target asset protection and growth. My experience lies in providing personalized solutions for diversifying and safeguarding portfolios to address market risks.
References:
McKinsey & Company. “From saving to spending: A second front emerges in the US retirement challenge” July 2022. https://www.mckinsey.com/industries/financial-services/our-insights/from-saving-to-spending-a-second-front-emerges-in-the-us-retirement-challenge
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth, Inc. (“Savvy Wealth”) is a tech company and the parent company of Savvy Advisors, Inc, (“Savvy Advisors”). All advisory services are offered through Savvy Advisors, Inc., an investment advisor registered with the Securities and Exchange Commission (“SEC”). For the purposes of this blog article, Savvy Wealth and Savvy Advisors may be referred to together as “Savvy”.
