In today’s world, preparing for retirement is essential, and empower your future through a 401(k) plan. The 401(k) is a retirement savings vehicle offered by employers in the United States, allowing employees to set aside a portion of their income for retirement on a tax-advantaged basis.

I am going to outline what a 401(k) is, how it works, its benefits, and important considerations for individuals looking to secure their financial future and empower their retirement.

What is a 401(k)

A 401(k) is a type of defined-contribution retirement plan established by employers for their employees. It gets its name from the section of the U.S. Internal Revenue Code that governs it. This retirement savings plan allows eligible employees to contribute a portion of their pre-tax income, meaning the money is deducted from their paycheck before taxes are withheld. This pre-tax contribution reduces the employee’s taxable income, resulting in potential tax savings in the year of contribution.

How Does a 401(k) Work?

A 401(k) plan typically operates through salary deferrals, where employees choose to defer a percentage of their salary into the plan. Many employers offer a matching contribution, which means they will match a certain percentage of the employee’s contribution, up to a specified limit. This employer match is essentially free money, and it is an excellent way to boost retirement savings.

The contributed funds are then invested in various investment options offered within the 401(k) plan, such as mutual funds, stocks, bonds, or target-date funds. The investment gains or losses on these funds grow on a tax-deferred basis, meaning individuals do not pay taxes on the growth until they withdraw the funds in retirement.

Benefits and how a 401(k) empowers you

One of the primary advantages of a 401(k) is the ability to save for retirement with pre-tax dollars, which can lower an individual’s taxable income in the present and potentially result in a reduced tax liability. Additionally, the funds within a 401(k) grow on a tax-deferred basis, allowing them to compound over time.

Another significant benefit is the employer match. When an employer matches an employee’s contribution, it instantly increases retirement savings and can significantly accelerate wealth accumulation. Furthermore, contributions made to a 401(k) are generally automatically, deducted from the employee’s paycheck, which makes saving for retirement convenient and consistent.

Additionally, 401(k) plans offer portability, meaning that if an employee changes jobs, they can typically roll over their 401(k) balance into a new employer’s plan or an individual retirement account (IRA), maintaining the tax advantages and avoiding early withdrawal penalties.

Important Considerations

While 401(k) plans provide numerous benefits, it’s crucial to consider certain factors. First, contribution limits are set by the Internal Revenue Service (IRS), and for 2023, the maximum an individual can contribute is $20,500 (subject to annual adjustments). It’s generally recommended to contribute at least enough to receive the full employer match, as that is essentially free money.

It’s also essential to understand that early withdrawals from a 401(k) before the age of 59½ may incur taxes and early withdrawal penalties. However, some exceptions exist, such as financial hardship or qualifying medical expenses, but these should be carefully considered as a last resort due to the potential long-term negative impact on retirement savings.

A 401(k) retirement savings plan offers several advantages and can empower you with key benefits.

Tax AdvantageOne of the primary advantages of a 401(k) is the tax benefits it provides. Contributions made to a traditional 401(k) are made with pre-tax dollars, which means you can reduce your taxable income for the year. This allows you to potentially lower your current tax bill while saving for retirement. Additionally, any earnings and investment gains within the 401(k) account grow tax-deferred until you withdraw the funds.

Employer Contributions

Many employers offer matching contributions to employees’ 401(k) plans. This means that for every dollar you contribute to your 401(k), your employer may contribute a certain percentage or match a portion of your contributions. Employer matching is essentially free money and can significantly boost your retirement savings.

Long-Term Savings Growth

401(k) plans allow for long-term savings growth through investment opportunities. Typically, you can choose from a range of investment options such as stocks, bonds, mutual funds, and more, based on your risk tolerance and retirement goals. Over time, these investments have the potential to generate compound growth, helping your savings grow significantly.

Portability and Flexibility

If you change jobs, you can often roll over your 401(k) into a new employer’s plan or an Individual Retirement Account (IRA). This portability allows you to continue building on your retirement savings and maintain the tax advantages of the account. Additionally, some plans offer loan options that allow you to borrow from your 401(k) in case of financial emergencies, although it is generally recommended to explore other options before considering a loan.

Automatic Contributions

401(k) plans usually have automatic contributions deducted directly from your paycheck, making it convenient and effortless to save for retirement. This automation encourages consistent savings and helps establish good financial habits.

Asset Protection

In many cases, 401(k) assets are protected from creditors and legal claims, providing an additional layer of security for your retirement savings.

It’s important to note that while 401(k) plans offer numerous advantages, there are also certain limitations and considerations to keep in mind. These include contribution limits, potential early withdrawal penalties, and the requirement to begin taking minimum distributions upon reaching a certain age. It is advisable to consult with a financial advisor to fully understand the benefits and implications of a 401(k) based on your specific financial situation and retirement goals.

Empower your 401(k) with these investment options

Stock Funds: These funds invest in stocks of different companies, providing potential growth but also exposing you to market fluctuations.

Bond Funds: Bond funds invest in fixed-income securities, such as government or corporate bonds. They tend to be less volatile than stock funds but offer lower potential returns.

Target-Date Funds: These funds are designed to automatically adjust the asset allocation based on your expected retirement date. As the target date approaches, the fund becomes more conservative by shifting investments from stocks to bonds.

Index Funds: Index funds aim to replicate the performance of a specific market index, such as the S&P 500. They offer broad market exposure and generally have lower fees compared to actively managed funds.

Money Market Funds: These funds invest in short-term debt securities and aim to provide stability and liquidity. They typically have low returns but are considered relatively safe.

Exchange-Traded Funds (ETFs): Similar to index funds, ETFs track a specific index but can be bought and sold throughout the trading day like individual stocks. They offer diversification and flexibility.

Company Stock: Some 401(k) plans allow you to invest in your employer’s company stock. However, it’s important to consider diversification and avoid overexposure to a single company.

It’s crucial to review and understand the specific investment options available within your 401(k) plan, along with their associated fees, historical performance, and risk levels. Consider your investment goals, time horizon, and risk tolerance when selecting the appropriate mix of investments. If you’re uncertain about making investment decisions, consult a financial advisor who can provide personalized guidance based on your circumstances.

The above will help you to empower your 401(k).

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Introduction

The surge and rise in prices of goods and services in an economy are called inflation. The increment in price results in your currency buying fewer goods and services resulting in the decreasing purchasing power of your money.

As I am revising this article, the inflation rate in Canada and the U.S. is around 8% the highest in four decades.

I am going to write about what I have been doing to save money during this inflationary period.

I have spent more than 25 years in the financial services industry. I have lent money, managed money, traded money, and seen two recessions, the tech crash in 2000, 9/11, 2008, and now 2022. The COVID-19 crisis was an outlier or a Black Swan. The challenge with the COVID-19 crisis is that we had to quarantine ourselves, as countries around the world had been hit by a pandemic that was merciless, carcinogenic, and catholic. The knife was in the stomach, turned around and salt is being rubbed in the form of a shortage of many goods, disruption in supply chains, hoarding, and inflation.

I would strongly recommend that you create a budget and stick with it. Inflation kills your budget.

The future is uncertain and the times are scary. However, we will overcome it.

One question on your mind is whether you will come out ahead financially at the end of this. Here is what I am doing to deal with inflation and save money.

Save on Car Insurance

It is easy to save if you own two cars. Debbie has a short drive to work. I am working from home. We will be driving the car once a week to get groceries. This month, I called the insurance agent and took one car off the insurance. Total savings is $125.

Save on Cell phone, cable, internet

As a loyal customer with a provider, you have to negotiate and it can save you money. I called my provider and negotiated better rates for the cell and internet. I switched to IPTV where I get 5,000 channels and only pay $15 a month. Total savings is $50.

Hair color for Debbie

Debbie used to go to a salon for coloring her hair. I learned how to color her hair. Total savings  $125.

Cutting grass

I have a huge lot and for the last couple of years had a professional company cut my grass three times a month. I am going to cut the grass this year. Total savings $100.

Save by Working from home

I requested to work from home. It saves me two hours a day stuck in traffic. I am saving $160 in gas and $50 in parking. Total savings $210.

Cooking at home

I am cooking all my meals at home. I used to eat out pretty often. No need for Uber Eats or Door Dash. Total savings $150.

Cut the non-essentials

Inflation could last for a while. No one knows if another wave of COVID-10 will come. So, the more money you save, it can sustain you.

Refinance, consolidate and lower your rates

If you have many loans, lines of credit, and credit cards, I recommend you refinance your mortgage and consolidate. This way you will have only one payment. Call your banker and lower your interest rate. I recommend Ashish Lala. He is the best in the business.  Continue to invest in conservative stocks that will give you a dividend and ask for a raise.

I hope some of these tips will help you to save money during these inflationary times.

Photo Credits: Tonik  Richard Burlton Andraz Lazic Andre Gaulin Diogo Brandao Max Ilienerwise Becca Tapert Anastase Maragos Sharon McCutcheon

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Money touches everything. It affects how we sleep, how we eat, how we raise our children, and how we dream about the future. Yet too often, we treat finances like a separate compartment of life, disconnected from faith, family, and well-being.

What if we approached money the way we approach health, looking at the whole picture instead of isolated parts?

In this conversation, Jason Trueman, Portfolio Manager with Cumberland Private Wealth Management, shares why a holistic approach to household finances matters. From buying a quality mattress to investing with discipline, Jason explains how thoughtful spending, long-term vision, and balance can create not just wealth, but freedom and peace of mind.

Welcome to Four Columns, where food, faith, finance, and family are not separate conversations, but part of the same story.

Jason, welcome to Four Columns, a holistic blog on food, faith, finance, and family. Please tell me a little about yourself.

I am a Portfolio Manager with Cumberland Private Wealth Manager. Cumberland is headquartered in Toronto. I work with a talented team in Kingston, Ontario, including a CFP, CA, CPA, and TEP, providing holistic wealth management services for successful Canadian families and business owners.

How did you end up in personal finance?

I graduated from Queen’s University with a Bachelor of Commerce Degree. I received my CFA charter in 2001. I started my career as an Underwriter with Chubb Insurance. I was recruited by AIG and worked in Bermuda for 7 years before returning to Kingston to raise our young family in 2010.

Give me three tips on how to have a holistic approach to personal finance?

Control your spending by buying things you need and on an average cost basis (i.e. you will spend one-third of your life on a mattress so buy a good one).

Be disciplined with your investing. Buy dominant companies with great management who care about both their customers and their shareholders (these are rare and require work to find).

There is a balance between disciplined spending and enjoying your life; life is short so if you need a trip or a new car or new shoes to enjoy your life then spend the money.

What happens when we live on credit cards and not on our salary?

Credit cards that you pay off in full on a monthly basis and never pay interest on and accumulate rewards are great. When you overspend and pay exorbitant interest living beyond your means then you will suffer from difficult financial decisions and increasing stress.

How important is it to have a budget as part of a holistic approach to our personal finance?

I find long-term goals are helpful in providing meaning to your actions like why am I going to work and saving for my child’s education or retirement. Budgets help keep your life and spending in order; like a calendar and daily to-do lists.

What are some important tips to start saving?

Paying off your higher interest-bearing debt is most important. Taking advantage of government savings programs like RESPs, RRSPs and TFSAs is enormously important as well. Again, buying things you need (healthy food, a quality mattress) instead of buying things you want for status and cost a lot on a per-use basis (the tenth pair of shoes, vacation properties) is critically important.

How do you balance faith, food, finance, and family?

I believe in humanity; if we all do our part to contribute, we collectively accomplish amazing things. If you don’t spend money on healthy food then you’ll pay the price with poor health and physical limitations. Finance is about independence; ideally, a career doing something you enjoy while creating financial freedom to do nothing if you so choose. Raising kind, caring and confident children who find something productive they love to do in life are our number one job as parents.

Can you recommend some great restaurants in Kingston?

Kingston has an enormous array of awesome restaurants – having 35,000 students in the city helps. I prefer local family-owned restaurants such as Tango, Woodenheads, and Harpers.

You manage money for the wealthy, what have you learned from the experience? Do they have a holistic approach?

Success usually requires some form of sacrifice at some stage in their life. For many that mean focusing on academic excellence instead of always finding the nearest party. For others, that means pursuing an idea, a vision, and taking on considerable financial risk, and working excessive hours to make their dream a reality.

How important is food to you?

Food has an enormous impact on how you feel and how you look. Humanity would benefit from healthier eating with lower health care costs, lower greenhouse gas emissions, and an overall more productive society and cleaner earth.

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A financial plan is a road map to achieving your financial goals.

We all have financial goals. It could be for a vacation, purchasing a home, children’s education, or retirement.

A financial plan looks at where you are at present and what you want to achieve in the future. It looks at net worth, cash flow, insurance planning, estate planning, retirement planning, and taxes.

A financial plan gets you in touch with reality, helps you to become realistic, looks at opportunities and risks, and gives you peace of mind.

Scott Schofield of Nesbitt Burns talks about reasons to have a financial plan and a disciplined savings strategy. Having this does not make you feel guilty.

Scott tell my global audience a little about you?

I am an investment advisor in London, Ontario, for approximately 150 families and business owners. I am a Chartered Investment Manager (CIM®) and have 20 years of experience in the asset management industry. Before joining BMO Nesbitt Burns, I consulted with financial advisors in my role as Senior Vice President with Mackenzie Investments and Dynamic Funds and hold a BA in Economics from Dalhousie University.

When not analyzing numbers, I enjoy many outdoor activities including kayaking and stand-up paddleboarding. My favorite activity is skiing with my wife and our two daughters that are 8 and 10 years old.

You have been around the financial services industry for a long time. What are some of the things you have learned? 

Being in the financial services industry has taught me a number of things over the years. However, one thing that stands out is that investors have a tendency to forget about ‘risk’ in their portfolios when the markets are good. It is always good to re-valuate your portfolio to ensure your portfolios are aligned with your objectives. If you are asking yourself, what are my objectives? you should seek advice from a licensed professional immediately.

Besides saving 10 percent, paying off your debts, living within your means what other advice can you give to my audience?

Great question, I would have to say seek out advice. Many Canadians feel like they do not have a high enough net worth to seek the advice of a professional. This is not the case. The value of having a financial advisor is undeniable.

Why is it important to save for retirement and what are some of the tools? 

There will come a day when you stop receiving a paycheque and need to replace that with an income from your portfolio. Saving in tax-deferred plans such as Registered Retirement Savings Plan’s (RRSP’s) and Tax-Free Saving Account’s (TFSA’s) are great ways to help reduce and manage the level of tax you will pay in retirement.

To become successful in saving, we have to make some sacrifices and have a financial plan. Do I always have to have the latest TV, cell phone, latest car? 

Some people really like to have the latest and greatest. I do! You should treat yourself from time to time. Having a financial plan and a disciplined saving strategy can potentially take the guilt out of treating yourself because you will know if you can or cannot afford these things.

Talk to me about TFSA and RESP? 

Both are great tools for investors.

The Tax-Free Savings Account (TFSA) began in 2009 and is a great way for Canadians to set aside money tax-free throughout their lifetime. A TFSA does not apply taxes on any contributions, dividends, capital gains, or interest earned, and can be withdrawn tax-free. This savings account is available to individuals aged 18 and older and can be used for any purpose.

An RESP is a great way to save for your child’s or grandchild’s post-secondary education. Parents, grandparents, and friends can contribute money any time to an RESP – up to a lifetime total of $50,000 per child. These contributions are not tax-deductible, but any investment income that’s earned within the plan isn’t taxed until it’s withdrawn.

The federal government will match 20% of the first $2,500 you contribute each year. That is $500 each year. When your children or grandchildren are eligible to start receiving the money to pay for tuition, books, computers, residence, meal plans, transportation and more, they pay the tax—generally at a much lower rate than you would have paid.

If my viewers want to become a client of yours, what are you looking for in a client? 

The bottom line is we want to work with clients that are engaged in their financial well-being.

Working towards financial goals is best done by a collaboration between our clients and our team.

It does take some investment of time in the early stages to get to know our client so we can properly propose personalized solutions and a financial plan that finds a balance between their goals and their risk tolerance. From there we implement the plan and monitor it year-round.

How important is it to have a financial plan, a road map of where you are going, goals, estate plan, and a will? 

I cannot stress enough how important a financial plan is to our client’s financial well-being.

It is a personalized blueprint or roadmap to meeting and exceeding financial goals.

A plan is adjusted over time as life events and unexpected things happen in our clients’ lives.

It also is a tremendous aid in helping to minimize tax during and after our clients’ lives.

How important is food to you and let us know some of your favorite restaurants in London?

What can I say I love food! I always like to be the first of my friends to try new restaurants and enjoy traveling and trying new to me restaurants along the way.

In London, I tend to frequent two of my favorites often.

The Church Key Bistro-Pub is a British traditional gastropub specializing in traditional food done with a gourmet flair. They use seasonal and locally sourced ingredients whenever possible. If you go there you have to try their Ale & Onion Soup with the Smoked Salmon Sammy.

The Bungalow – Neighbourhood Hub, is a great neighborhood ‘local’ in a residential area. The restaurant’s style and cuisine are designed for casual and convivial enjoyment. They have an extensive craft beer selection and a build your own burger option that they claim results in over 3000 different possible combinations. When not tinkering with my burger recipe of choice, my go-to is the Fish Tacos with the Habanero Potato Cheddar Bacon Soup.

How do you balance faith food family and finance in the 21st century? 

Finding a balance is sometimes tough with a busy practice and family. Making and taking the time to shut off devices and being in the moment with my family is very important to me. The best conversations are with my girls walking the dog after dinner or the quiet time when riding the chair lift when skiing the family.

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John joined Brian Gribben Insurance Planning after spending 6 years as a mortgage agent providing customized mortgages based on the unique needs of his clients. John’s financial experience dates back several decades managing a national sales force.

In just 3 years in the business, John achieved the “Elite Member level of the President’s Club”. This level was awarded to only 15 out of 2,000 advisors across 5 provinces in Canada for their performance in 2017.

His core values throughout his career are based on honesty, integrity, and responsibility toward the people he serves. In his role, he helps people achieve their financial dreams through a well- structured and strategic financial plan.

I ask John questions on having a financial plan, estate planning, life insurance, having a will, household budget, his role, and some practical tips on how to manage our finances.

Why is having a financial plan important and what is your role in doing that?

Without a financial plan, it’s like flying an airplane, without radar or the instrument panel to give you direction and your destination.  You can’t depend on hope to get the result and the outcome you expect. A financial plan must be strategic and will evolve as you go through the different stages of one’s life.  A plan is fluid and will be able to respond to all life events without affecting your lifestyle.  My role is to help people develop a sound strategic financial plan and guide them through it.

Let’s talk about estate planning. Why is it important?

Estate planning is important to ensure you have taken care of all your financial responsibilities that will be carried out when you are no longer in this world.   It will ensure that whatever wealth you have accumulated over your lifetime, is distributed properly according to your will and with minimal tax implications. If not done properly the government will be dealing with the estate.

Why is having life insurance important?

Life insurance protects your family and the lifestyle your family has been accustomed to during your living years.  Without it, you expose your family to either utilize the assets you have accumulated, or if limited assets are available, their lifestyle will dramatically change.  It provides tax-free money to your family and/or beneficiaries upon your death.

There is however a big difference between term insurance and permanent insurance such as Whole Life or Universal Life.  Both serve a purpose but permanent life creates a more favorable outcome late in life.  Term insurance becomes so expensive later in life that most people can no longer afford it and they cancel it leaving all the deposits with the insurer.  The other potential outcome is you might outlive the insurance and once you have reached 80, Term insurance is not available and again all your deposits, stay with the insurer.

What is your opinion on having a will? 

Not really for me to comment, but you want to make sure you have one to ensure your assets are handled according to your wishes.  It is part and parcel of your estate planning.

What is your view on having a monthly household budget?

Definitely a good option to understand where your money is being spent relative to the income you bring in.  It helps you manage your expenses and allocate it according to your goals.

Give me three practical tips on how to manage our finances?

Manage your debt!  If you have bad debt, work at making it a good debt, and if you have a good debt work at making it better.  Always ensure you save 10 to 15% of your gross income annually.  Ideally, plan to have an emergency fund in the event of a job loss, up to 6 months of income would be a good emergency fund.  You should also protect your deposits in the different financial vehicles you might use.  Disability Insurance, such as an income replacement, is a great idea.  Critical Illness should also be considered.  The waiver of premium in a life policy is a good idea to have and it is relatively inexpensive.

What is your role as a financial advisor with BGIP?

I’m a self-employed person who works with BGIP (Brian Gribben Insurance Planning) to provide clients with the best possible financial services through the development of a strategic financial plan.  We use a very unique process to help clients increase their income in retirement and identify where they are letting money get away from them, unknowingly.  There are about 24 of us in Canada that use this process.

If someone does not have any savings how should they start?

Putting money aside in a TFSA would be a great start.  At the moment, if someone has never contributed to a TFSA they have $63,500 contribution room to invest.  You can start as small as $50/week for example and continue to do this for 40 years at an annual interest rate of 5% would produce $329,783.  The miracle of compounded interest can create significant wealth.

You talk a lot about keeping your money, walk me through this?

Basically, while you are working you want to make sure your money is well managed and used for the right things in life.  Saving money is one thing, investing it is another.  In many cases we save money but it is really not working for us now and for the future.  Properly invested may mean the difference between a comfortable retirement versus a challenging retirement.  Make sure you have a plan for your money and how it will help you and your family today and in the future.

I say to people once they retire, they will have a new job title;  Asset Manager.  You will have the responsibility to manage your assets in retirement as long as you have planned for it during your working years.  In our life, we have a lot of information on the internet, books, magazines, etc. telling us to save money but very few talk about how to enjoy that money in retirement.  Too many people are eager to pay off their mortgage and will make incremental payments to their financial institution, which a lender will be more than happy to receive.  That money given to the lender in excess of what the lender is expecting is not working in your favor.  Paying your house quickly doesn’t increase the value of your house.  That money could have been used to enhance your financial wealth and ensure you get the benefits from it and not the lender.  This is called “Lost Opportunity Cost”, meaning the extra money given to the lender could have generated interest for you.

Give me some advice on being a great husband, father, and managing household finances?

Your life should be built around these 4 principles: Faith, Family, Fitness, and Finance. In that specific order and when this is done accordingly you will have achieved some well-deserved Freedom.  As a husband, my faith and trust in God are key.  Without Him, life would be different for my wife and me and consequently our family.  God has entrusted us with His money, and we need to be good stewards of that money.  I always think of the parable of the Talents in Mathew 25.  As a father and grandfather now, I need to make sure our kids and grandkids consider different factors before making a significant financial decision.

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