Common Retirement Questions and Answers

This blog is a quick topline hit on some commonly asked questions regarding retirement. I have a more detailed blog on the different types of retirement accounts and some common recommendations navigating your retirement planning that you can check out here. If there are topics you feel like you would like me to expand further on, or have a question - feel free to leave me a comment and I will get back to you!

1. Can I Have 2 401k Plans?

Yes, you can have two 401(k) plans simultaneously in certain situations. Let’s get into the common situations where this can happen.

Common Scenarios Where You Can Have Two 401(k)s:

1. Multiple Jobs

If you work two jobs and both employers offer 401(k)s, you can contribute to both Important: The combined total of your contributions to both plans cannot exceed the annual limit ($22,500 for 2024, or $30,000 if you’re 50 or older)

2. Current and Old Employer Plans

You can keep your old employer’s 401(k) while contributing to a new employer’s plan You can only contribute to your current employer’s plan(s)

3. Regular and Solo 401(k)

If you have a regular job with a 401(k) and also run your own business You can contribute to both your employer’s 401(k) and your solo 401(k) Special contribution limits apply in this case

Important Considerations:

• Total Employee Contribution Limit: The $22,500 limit (for 2024) applies across ALL your 401(k)s combined, not per plan

• Employer Matches: Each employer can match up to their plan’s limits, and these matches don’t count toward your personal contribution limit

• Tracking Responsibility: You’re responsible for ensuring you don’t exceed the total contribution limit across all plans

• Investment Options: Having two plans might give you access to different investment options and benefits

It’s recommended to consult with a tax professional or financial advisor to optimize contributions across multiple plans and ensure you’re following all IRS regulations.

2. When should I start saving for retirement?

Start as early as possible to maximize compound interest

• Ideally in your 20s, but it’s never too late to begin

• Even small contributions early on can grow significantly over time

• Example: $200 monthly starting at age 25 vs 35 could mean a difference of over $200,000 by age 65

3. How much should I save each month?

• Aim to save 15-20% of your gross income for retirement

• At minimum, contribute enough to get your full employer match

• Consider using the 50/30/20 rule: 50% needs, 30% wants, 20% savings (utilize a budgeting app to make sure your money is working to achieve your goals!)

• Adjust based on your age, current savings, and retirement goals

4. What’s the difference between a Traditional and Roth IRA?

Traditional IRA:

• Tax-deductible contributions now

• Pay taxes when you withdraw in retirement

• Required Minimum Distributions (RMDs) at age 73

Roth IRA:

• Contributions made with after-tax dollars

• Tax-free withdrawals in retirement

• No RMDs during your lifetime

• Great for those expecting to be in a higher tax bracket later

5. What are Required Minimum Distributions (RMDs)?

Must start withdrawing from traditional retirement accounts at age 73

• Calculated based on account balance and life expectancy

• Roth IRAs don’t have RMDs

• 50% penalty on missed RMDs

6. How much money will I need in retirement?

Typically 70-80% of your pre-retirement income - this is a very over-simplified model but can be used as a quick answer.

Consider factors like:

• Expected lifestyle

• Healthcare costs

• Location and cost of living

• Debt obligations

• Travel plans

• Desired legacy for heirs

7. What are catch-up contributions and when can I make them?

• Available starting at age 50

• Additional $7,500 allowed in 401(k) plans (2024)

  • Extra $1,000 for IRAs

  • Can significantly boost retirement savings in later years

8. Should I prioritize paying off debt or saving for retirement?

There’s a mathematical certainty to this which takes several factors into consideration with interest rates and loan amounts, but in most scenarios the answer would be to prioritize getting your employer match first. Not only because its “free money” but because you generally see a higher rate of return mathematically compared to paying off a loan.

The Math Shows:

• 50% immediate return from match (assuming typical 50% match up to 4.5% of salary contribution) > 20% CC interest > 6% student/car loans
• Even factoring in taxes and penalties, the match math works out better
• Exception: If credit card debt is causing spiraling interest and fees

However, we do recommend you consider the burden the weight of debt has on your emotional/mental well-being. It may not make the most mathematical sense, but feeling the relief of reducing your debt burden can be a major personal value for you to consider. Otherwise, here are some options:

• Pay off debt before additional retirement savings (check out my blog on debt repayment strategies here.)

• Consider a balanced approach with low-interest debt (like mortgages)

• Create an emergency fund alongside retirement savings

9. How should my investments change as I get closer to retirement?

Generally become more conservative over time

• Traditional rule: 100 minus your age = percentage in stocks

• Consider target-date funds for automatic rebalancing

• Don’t become too conservative too early

10. What happens to my 401(k) if I change jobs?

Usually multiple options are available in this scenario. Some options include:

• Roll it over to your new employer’s plan

• Roll it into an IRA

• Leave it with your former employer

• Cash out (usually not recommended due to taxes/penalties)

11. How do Social Security benefits fit into retirement planning?

• Benefits can start between ages 62-70

• Full retirement age is 67 for those born after 1960

• Waiting until 70 maximizes your monthly benefit

• Check your estimated benefits at ssa.gov

12. How do I protect against healthcare costs in retirement?

• Consider a Health Savings Account (HSA) if eligible

• Plan for Medicare premiums and supplemental insurance

• Look into long-term care insurance options

• Build a specific healthcare fund within retirement savings

13. What role should Social Security play in my retirement plan?

• Consider it a supplement, not your primary income source

• Average benefit replaces about 40% of pre-retirement income

• Benefits are inflation-adjusted

• May be wise to plan as if benefits will be reduced

14. Can I cancel my 401k and cash out while still employed?

While it’s technically possible to access your 401(k) funds while employed, there are significant restrictions and consequences to consider:

In-Service Withdrawals:

• Most plans only allow withdrawals while employed if you’re at least 59½ years old
• Some plans may allow hardship withdrawals for specific situations like:
  • Medical expenses
  • Prevention of eviction/foreclosure
  • Funeral expenses
  • Certain education expenses
  • Primary home purchase
  • Natural disaster repairs

The Costs of Early Withdrawal:

1. Immediate tax liability on the full amount withdrawn
2. 10% early withdrawal penalty if you’re under 59½
3. Loss of potential investment growth and compound interest
4. Reduced retirement savings

For example, if you withdraw $10,000:

• You might owe around $2,400 in federal taxes (assuming 24% tax bracket)
• Plus $1,000 early withdrawal penalty
• Plus potential state taxes
• Meaning you could end up with less than $6,000 from your $10,000

Alternative Options:

1. 401(k) loan (if your plan allows)
   • Borrow up to 50% of your balance or $50,000, whichever is less
   • Must be repaid with interest, but to yourself
   • No taxes or penalties if repaid on schedule
2. Reduce contributions temporarily rather than stopping completely
3. Look into hardship withdrawal if you have a qualifying emergency
4. Consider other sources of funds before tapping retirement savings

I strongly advise speaking with your plan administrator and a financial advisor before making any decisions about early withdrawals from your 401(k).