By Mike Gibbons, RICP®
Planning for retirement often involves complex strategies and a multitude of investment options. At the core of any retirement plan should be one of the most valuable tools in your financial arsenal: the 401(k) account. These employer-sponsored retirement plans help you contribute to your future with several added benefits that provide an edge over traditional savings accounts. Let’s explore 5 essential ways to maximize your 401(k) through Abbott Labs and AbbVie to propel you forward in planning for a comfortable retirement.
1. Increase Your Contribution Rate
When you originally enrolled in your Abbott Labs retirement plan, you may have opted for a default contribution amount to be deducted from each paycheck. While it’s a good start, it’s likely not enough to give you a nest egg that meets your retirement needs.
According to a 2022 Vanguard study, the majority of automatic enrollment plans (36%) set the default contribution to 3%. Most experts, however, suggest a retirement contribution of around 10%-15% of your annual income and many 401(k) plans will match more than 3% of your contribution.
The same Vanguard study also found that employers matched 4% of employee contributions on average. So if you’re not increasing your annual 401(k) retirement contributions, you could be leaving money on the table.
The annual limit for 401(k) contributions in 2023 is $22,500 ,which boils down to $1,875 per month. On a gross salary of $150,000 per year, that would be exactly 15% of your income. Budgeting, cutting back on expenses, and channeling extra income (such as bonuses) into your 401(k) are excellent ways to maximize your savings efforts and free up funds for your AbbVie 401(k) plan.
2. Take Advantage of Abbott Labs’ Employer Match
As previously mentioned, your employer match is a simple way to maximize your retirement benefits. On average, most companies offer to match up to 4% of your retirement contributions each year. As long as you’ve met the minimum requirements for tenure with the company, your employer’s contributions are yours to keep.
Under Abbott’s Stock Retirement Plan (the company’s 401(k)), employees have the opportunity to contribute 2% of their gross annual pay to the stock retirement plan and will receive a 5% employer match from Abbott.
You may also have access to another Abbott Laboratories program called Freedom 2 Save. This retirement savings program automatically makes 5% employer contributions to your SRP plan as long as 2% of your income goes toward student loan payments. This allows you to tackle two competing financial goals at once: saving for retirement and paying down student debt.
3. Make Catch-Up Contributions
Abbott employees who are age 50 and older can contribute additional money to their 401(k) accounts based on the IRS catch-up contribution limits. The catch-up contribution is designed to help people who may have missed the chance to contribute earlier in life but are now closer to retirement. For 2023 the IRS limits catch-up contributions to $7,500. That could significantly impact your efforts in building a comfortable retirement while also reducing your taxable income for the year.
Note: The IRS has delayed the implementation of a new rule regarding catch-up contributions until 2026. The rule states that individuals who earned over $145K in Social Security wages in the previous year must make any catch-up contributions in their workplace retirement plans (like a 401(k), 403(b), and 457(b)) as an after-tax Roth contributions, and will not have the option to make them as pre-tax contributions. People over the age of 50 are eligible to make catch-up contributions, and everyone will have that ability going forward, regardless of their income.
4. Watch Out for Fees
As you utilize a 401(k) and other retirement savings plans to move toward your goals, try to avoid funds with high fees, as these can cut into your savings over time. Many people aren’t aware of the fees they’re paying on their retirement accounts, which can range from 0.2% to 5%. The higher your fee is, the longer it may take to grow your investments.
To minimize fees, consider investing in low-cost index funds or exchange-traded funds (ETFs). These options often have lower expense ratios as opposed to actively managed funds, which can lead to substantial savings over time. It’s also a good idea to periodically review your 401(k) plan for excessive fees and consider discussing fee structures with your financial advisor.
5. Invest for Growth
For professionals with a long investment horizon, focusing on growth is essential. And your retirement date doesn’t necessarily need to line up with your investment horizon. Your individual circumstances play a large part in this, but it’s primarily because you may not distribute your retirement savings all at once.
For example, if you plan to retire in the next 10 years but you’re depending on other resources to carry you through the early years of retirement, you may not need a 10-year investment horizon. In this scenario, the majority of your nest egg could remain invested for 20 to 40 years. Without this key perspective on retirement, you could potentially rob yourself of additional growth, returns, and ultimately a more comfortable retirement lifestyle.
Get Your 401(k) on Track
Working with Abbott Laboratories and AbbVie comes with fantastic benefits that go beyond your take-home pay. Are you confident you’re maximizing your employer benefits? If not, Gibbons Financial Group can help you navigate your retirement benefits with strategies that could boost your savings, mitigate your tax liability, and plan for the next generation.
For a better understanding of how your Abbott retirement plan works and a customized plan for optimizing your finances, call 224-419-5550 or email me at Mike@gibbonsfinancialgroup.com to schedule a complimentary consultation. And be sure to join our free webinar, Retiring Early From Pharma.
About Mike
Michael J. Gibbons is founder and president of Gibbons Financial Group, an independent advisory firm providing custom-tailored financial planning and investment management services to pharmaceutical and healthcare professionals and their families. Mike has over 25 years of experience and spends a significant portion of his day working with pre-retirees and retirees, focusing on asset management, Social Security and pension planning, as well as retirement income preparation.
Mike has degrees in both business and psychology from Lake Forest College and currently holds his Retirement Income Certified Professional (RICP®) designation from the American College. Mike was named a Five Star Wealth Manager for 2016 and 2018* Mike is heavily involved in his community, having served on the Village of Gurnee Police Pension Board as a Community Volunteer and the St. Patrick’s Parish Financial Board. When he’s not working or volunteering, Mike loves playing golf and spending his time with his wife and children. To learn more about Mike and how he can help you, connect with him on LinkedIn, visit his website, and register for his free webinar, Retiring Early From Pharma, created specifically for professionals retiring from the pharmaceutical, biotechnology, and healthcare industries.
*Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2016/2018 Five Star Wealth Managers.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value, and may trade at prices above or below the ETF’s net asset value (NAV). Upon redemption, the value of fund shares may be worth more or less than their original cost. ETFs carry additional risks such as not being diversified, possible trading halts, and index tracking errors.