If you want to comfortably retire from AT&T, focus on your 401(k).
The first thing that comes to mind when thinking about AT&T’s retirement benefits is likely the company pension plan. But, it’s the AT&T 401(k) that can be the deciding factor in living the type of retirement you want most.
That’s because you are limited in what you can do to increase the size of your pension. Essentially, you can work longer or earn more. Your 401(k) gives you far more control. You decide how much of your paycheck to set aside and how to invest that money.
To get the most from your AT&T 401(k), follow these five steps.
1. Save as much as you can
Don’t be fooled into believing that having a pension eliminates the need to save for retirement. Saving is the surest way to build wealth. With the power of compounding – earnings generated by your earnings – your 401(k) can grow significantly over time.
How much should you save? At least make the full Basic contribution to maximize the employer match.
After one year with the company, AT&T matches 80% of your Basic contribution. For managers, your Basic contribution is the first 6% of your salary. For most non-managers, it’s a dollar amount based on your banded pay.
Ultimately, you should aim to save as much as you can. Consider how much of a difference just a 5% savings increase can have. Below are the ending balances from various savings rates on a $50,000 salary over 35 years (assuming a 5.5% annual return).
If you make the full Basic contribution, you can save even more in the form of Supplementary contributions. Your Basic plus Supplementary contributions, however, cannot exceed the annual IRS limit of $18,500 (2018). For most non-managers, you are also limited to a total contribution of no more than 30% of your pay.
And, if you are age 50 or older, you can take advantage of catch-up contributions, which allow you to save an additional $6,500 ($24,500 total) per year.
2. Get a financial plan
A financial plan is proven to help people save more for retirement. In fact, an HSBC study found that those with financial plans amassed nearly 2.5 times more retirement savings than those without a plan. Further, 44% of those with a financial plan saved more money each year for retirement.
Also, a plan will help you make important retirement planning decisions. For example, what should you do with your 401(k) once you retire or change jobs? Should you keep it or roll it over into an IRA? If you retire, how should you use those funds along with other income sources to meet your financial needs?
3. Choose an appropriate investment strategy
The AT&T 401(k) plan offers a variety of investment fund options. Selecting the right mix of investments in your 401(k) is critical to your financial success. It’s also the part people often find the most challenging.
Instead of making important investment decisions on your own, consider working with a financial adviser. An adviser can review your 401(k) and help implement an investment strategy that is appropriate for your financial goals.
Generally, you should start aggressive then reduce risk closer to retirement. Younger employees, therefore, should have more money allocated to stocks for their high return potential. Over time, gradually reduce risk and move more of your accumulated savings to lower-risk investments like bonds.
4. Forget about it
As counterintuitive as it may sound, once you have an appropriate investment plan in place, the next best course of action is to simply forget about your 401(k).
Fidelity reportedly conducted a review of all their accounts to determine which ones performed the best. What they found out is quite revealing. The best performing accounts were owned by investors who forget they even had accounts with Fidelity.
It's okay to check your account occasionally. What you don’t want to do is make the mistake of buying high when the market peaks or selling low when the market takes a dive. Instead, ignore the market noise and stick with your plan.
5. Don’t treat it like a savings account
There are two ways most employees can access their AT&T 401(k) accounts even if they’re still working. You may be able to take out a withdrawal or take out a loan. There are several reasons though why you don’t want to take money from your account before you retire.
Most importantly, it reduces the amount you have invested and growing for your future. Any time you take from your retirement savings to pay for current expenses, you guarantee having less money in retirement.
Additionally, there are potential tax consequences. Withdrawals are taxed at your ordinary income tax rate. And, if you are under the age of 59 ½, you may also be subject to a 10% early withdrawal penalty.
If you borrow from your account, you must pay it back along with a quarterly maintenance fee and interest on the loan amount. Repayment is typically deducted from each paycheck over a specified timeframe, dictated by the plan. But, if you change jobs, the loan must be paid back in full or it will be treated as a withdrawal.
Instead of using your 401(k) as a savings account, build a separate emergency fund that you can access at any time without penalties or fees. You’ll be better equipped to handle any unexpected expenses while staying on track toward retirement.
Advance Capital prides itself on having worked with AT&T employees and retirees for over 30 years. We even wrote the book on it. So, we encourage you to download our “go-to guide” on AT&T retirement topics: The AT&T Employee’s Guide to Retirement. (CLICK THE BUTTON BELOW.) This interactive guide is designed to help you better understand how to get the most out of your AT&T retirement benefits.