By Clay Elliott, CFP®, AAMS®, CRPC®

As a plant worker (perhaps at Exxon, Shintech, or Dow), you have a different skill set and environment than someone in an office or retail job. Since your occupation can be physically and mentally strenuous, you’d be forgiven if you were looking forward to retirement a little more than other folks. 

To set up a better retirement, many plant workers make the maximum annual contributions to their funds while working. But is maxing out your contribution the best strategy for you as a plant worker?

Possible Drawbacks to Maxing Out Your Contribution

Maxing out your contribution may give you the appearance of looking financially disciplined. However, there are a few reasons why more moderate contributions might be more practical now.

Early Retirement

If you’re planning to retire early from your plant worker position, you may be unable to freely access any of your retirement funds until age 55 or 59½. Withdrawing funds at a younger age could expose you to financial penalties that you can’t afford right now.

Learn what specific age restrictions apply in your case. If you still want to plan an early retirement, be aware of the consequences of early withdrawals. 

Your Present vs. Future Lifestyle

Plant workers work hard to maintain a certain quality of life away from their jobs. Many can stretch a dollar just enough to make ends meet. But in an emergency, you might need to make a big purchase. In such instances, you need funds set aside which you can access quickly.

Maxing out your contribution to your retirement plan takes some of that everyday money out of your pocket. If you need to pay for a major expense, your cash reserves may not be as liquid as you need, or you might need to take on some credit debt. It may be worth holding back on maximum contributions to have a buffer for your daily budget.

Tax Deferment

Contributing too much to your retirement fund, especially with a tax-deferred plan, may also inadvertently result in your moving up to a higher tax bracket. After you retire, the tax funds you take out from a tax-deferred account become taxable income. 

Making an excessive number of withdrawals, especially if you have income from another source coming in, means there’s a chance you could be moved into a higher tax bracket. This would increase your tax liability.

In pre-retirement, your contributions to a traditional tax-deferred IRA are made before taxes, so your taxable income decreases—potentially to the point that you find yourself in a lower tax bracket. 

But drawing on the funds in retirement can reverse that train. In turn, you might end up facing headaches when tax time comes around.

Managing Risk Through Retirement Planning

A big part of planning for retirement is knowing the kind of lifestyle you want to lead in retirement and how much it takes to afford it. Your expectations should be reasonable, though you might also want to focus on specific goals or “wish list” items you may finally see in retirement.

Whatever your strategy, maxing out your contributions might make it harder to deal with situations that come up now. You should consider planning for unforeseen or distant events like:

• Divorce 
• Litigation 
• Estate planning 
• Emergencies

Making room for these and other possibilities helps mitigate risk.

Look Outside Your Company Plan

Plant workers enrolled in their company’s dedicated retirement plan enjoy that they don’t have to do much, if anything, to keep it growing. If you can get by without too much effort on your end, that’s convenient.

However, your options don’t stop at what your employer offers. Setting up your own investment account could support your overall tax planning, especially with tax-free instruments like individual, joint, or Roth IRAs. It would also give you more to work with in retirement, allowing you to create a diverse, sturdy financial profile that can pay off in your later years.

Seek Input Before Maxing Out Your Contribution

Retirement planning is especially valuable to plant workers and other employees who have spent their careers engaging in demanding physical labor. While maxing out your contributions to your retirement plan may seem like a prudent move for the future, doing so may bring about unexpected fallbacks. 

Oak Capital Financial Advisors has extensive experience working with employees of Exxon, Shintech, and Dow, guiding them toward their ideal retirement. Our financial services for plant workers goes beyond managing your 401(k) or IRA. We look at the full picture and even help you maximize the benefits your company offers. The sheer amount of retirement planning decisions you have as a plant worker can feel overwhelming—but that’s where we come in.

To set up a consultation with us about retirement strategies, call 225-416-7373 or email [email protected].

About Clay

Clay Elliott is Owner and Principal Financial Advisor at Oak Capital Financial Partners, a financial services firm based in Port Allen, LA, dedicated to providing local financial advice held to the highest standards. Since becoming a financial advisor in 2016, Clay prides himself on working toward his clients’ best interests as a fiduciary. He provides comprehensive financial planning and educates his clients to develop robust wealth management strategies to help them pursue their financial goals. He loves helping people become financially independent and enjoys seeing them live out their financial plan successfully.
Clay holds a bachelor’s degree in marketing from Louisiana State University as well as the CERTIFIED FINANCIAL PLANNER™ designation. He is also an Accredited Asset Management Specialist and a Chartered Retirement Planning Counselor.

Outside of work, Clay enjoys spending time with his wife, Claire, and daughter, Camille, playing tennis, fishing, and attending LSU sporting events. An active participant in his community, Clay is involved with The Emerge Foundation Center for Autism, the West Baton Rouge Chamber as an ambassador and member of the Governmental Affairs Committee, is a board member for the Louisiana Chapter of the Financial Planning Association and West Baton Rouge Small Business Council, and a member of Port Allen Rotary Club. He was also named Young Professional of the Year by the West Baton Rouge Chamber of Commerce. To learn more about Clay, connect with him on LinkedIn.