Happy Labor Day Weekend! We hope everyone has a fun and safe couple of days and of course we hope you get to enjoy some crabs.
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Kick off the weekend with some information to help you set yourself up for a healthy retirement.
As a country we have a retirement crisis. A large percentage of retirees will not have adequate savings to last throughout their retirement. In a study performed by John Hancock, they stated "nearly two-thirds of retirement plan participants say their retirement savings are "not so good" or "could be better". And only 18% are very confident in their ability to make the right financial decisions." It is up to employers and employees to find better ways to utilize these 401k's and other retirement programs.
There are many opportunities to improve and or take better advantage of your 401k's as an employee and an employer.
What To Do as an Employer:
As an employer, there are many reasons to get motivated. First, a high-quality retirement plan can be a strong boost to employee morale and culture. A 401k as part of an overall benefits plan, when structured properly shows that the employer is looking out for employees. Studies have shown consistently that money is not the only reason employees stay at firms. They want good benefits, a great work environment, a great culture and to know people care about them. A good 401k plan should include the ability to do regular or Roth contributions and ideally have a match. How generous the match will be is dependent on economics, but regardless- it shows good faith to employees and gives them some extra motivation to be in the plan.
Motivation for Employees
As an employee, there are several ways that you can help to improve your 401k or better utilize your 401k plan.
- Are you taking advantage, as best possible, of your 401k or other retirement plan?
- Are you contributing all you can to the plan?
- Are you contributing enough to get all the employer matching offered? (Remember, that’s free money) Do your best to meet the max and don’t give up on that extra money.
By being involved in the plan, you are helping it be more significant. The more people in the plan, the lower the typical expenses and that will benefit you and everyone else. Also, by helping your plan grow, it may be eligible for cheaper share classes of the funds offered in your plan. Again, that’s a win for everyone including yourself.
Next, when you get a raise, your 401k should get a raise too. Put some of that extra earned money towards increasing your retirement plan contributions. When it comes to the funds in your plan, make sure you are allocated appropriately for your age and risk tolerance. If you are unsure how to do this, most good plans offer Target Date funds that approximately match your future retirement date. These can be a great solution for anyone weary of doing their own allocation.
If you are an employer, I'd ask if you are offering the benefits listed below in your plan. If you are an employee, review whether your plan offers these benefits and if not ask if they might be possible.
Auto Enrollment – greater than 90% of participants will utilize this. It grows the plan, and it helps each employee save for retirement.
Auto Escalation – again greater than 90% of participants will do this. It grows the plan size and increases individuals' contributions helping them reach retirement goals.
- This is where your plan automatically raises your deposit each year by 1% up to a limit. This helps you save more money automatically, will generally reflect higher deposits by all participants and as stated before, helps the plan size grow. Additionally, none of these benefits are forced on an employee, and anyone that wants to decline them can do so.
Roth 401k option – for some participants, this is the only easy way to do a Roth contribution. For those in lower tax brackets it can add valuable deferral of retirement assets that later distribute tax free.
HSA plan – this is not actually part of the 401k plan, but if your employer has a high deductible health insurance plan, ask if this is an option. This money defers for Health expenses and no Social Security, Medicare, Federal or State taxes are paid on these contributions.
In summary, get involved in your 401k. If you are an employer, do your best to promote retirement and provide high quality benefits to help your employees save and grow. It’s great for your employees and your firm. If you are an employee, get involved in your 401k plan, take advantage of what is offered, and do your best to save. Your retirement will depend on this commitment. If your plan does not have some of these benefits, ask your employer or plan representative if these benefits can be added. If they hear from enough employees, they may just add these to your plan.
