My Boomer Dad Recently Retired At 67, But Had Nothing Other Than a 401K). How Common Is This?

Back in the day, it was common for private sector employers to offer workers access to a pension that would take care of them during retirement. But over the past number of decades, private employers have largely done away with pensions and replaced them with 401(k) plans.

Now, the burden of saving for retirement has been shifted onto working Americans. And while a good number of companies do offer a match in their 401(k) plans, for the most part, Americans are on their own when it comes to accumulating funds for their senior years.

In this Reddit post, we have someone who’s wondering if it’s common to only save for retirement in a 401(k) plan. And the answer is, it’s pretty common. But that doesn’t necessarily mean that it’s a good idea to limit yourself.

The problem with 401(k)s

The nice thing about 401(k) plans is that they make it easy and convenient to save for retirement. Contributions are deducted from your pay automatically, and employer matching funds can help you grow your balance.

But there are certain pitfalls you might encounter if you only save for retirement in a 401(k). First of all, 401(k)s require you to leave your money alone until age 59 and 1/2 or otherwise incur an early withdrawal penalty.

Now there can be an exception to that rule. If you’re 55 or older and leave your job, you may be able to tap the 401(k) from that job early.

But let’s say you decide you want to retire at age 53. There’s no rule that allows you to take penalty-free withdrawals from a 401(k) in that situation. So if all of your money is in a 401(k), you’re in a pickle.

Another issue is that 401(k) plans commonly offer limited investment choices. They don’t let you hold individual stocks like IRAs, and some of the funds they offer could charge hefty fees. Over time, high fees could eat away at your savings, leaving you with less money by the time your career comes to an end.

It pays to branch out from a 401(k) 

There’s nothing wrong with using a 401(k) to save for retirement. Quite the contrary — it pays to take advantage of a workplace 401(k) if it comes with an employer match. But it’s also a good idea to keep some of your long-term savings in other accounts.

You may want to invest some of your money in an IRA for a broader investment mix. For example, if there are specific companies you’ve been following, you could hold shares of their stock in an IRA.

It’s also a good idea to keep some retirement savings outside of a tax-advantaged plan like a 401(k) or IRA. This way, if you end up wanting to retire early, you won’t have to worry about facing penalties for accessing money that’s yours.

If you’re not sure which accounts to use to save for retirement, consult a financial advisor. They can help you spread your money around and also come up with a solid investment mix that’s conducive to meeting your long-term goals.