The fast-fading days of retiree health coverage
Employers are trying out all kinds of approaches to better manage retiree health costs, though the day will eventually come when just a handful will offer such benefits to the over-65 set.
That’s the conclusion the Kaiser Family Foundation reached in what is essentially a status report titled “Retiree Health Benefits at the Crossroads.”
Companies once offered retiree benefits as a way of retaining workers but have been chipping away at them for years. One of the more recent companies to make the move was Northrop Grumman, which earlier this month told employees it would use a broker to help them choose from a variety of Medicare supplemental options. That's just one of a number of avenues employers are taking.
As Kaiser noted, “several major trends stand out in particular, namely, growing interest in shifting to a defined contribution approach and in facilitating access to non-group coverage for Medicare-eligible retirees, and consideration by employers of using new federal/state marketplaces as a possible pathway to non-group coverage for their pre-65 retiree population.”
The report noted that the number of companies offering coverage of any type to retirees has dwindled, from 66 percent in 1988 to 28 percent last year.
It said even employers that plan to continue providing coverage of retirees are exploring ways to reduce the corporate dollars dedicated to the task.
Though fewer in number, retiree health benefit plans remain an important source of supplemental coverage for roughly 15 million Medicare beneficiaries and a primary source of coverage for more than two million pre-65 retirees in the public and private sectors, Kaiser noted.
The landmark changes brought to health care by the Patient Protection and Affordable Care Act, and the constant revisions of the law, have left employers off balance when it comes to cost-containment measures, Kaiser said. But there are other factors at play that further complicate planning.
For instance, Kaiser says, a consistent push to boost the Medicare eligibility age to 67 could result in companies having to cover their older workers for another two years. That can add up for those with large and experienced workforces.
“In an earlier study, Kaiser Family Foundation and Actuarial Research Corporation modeled the effects of raising the Medicare eligibility in a single year (2014), finding that employer retiree plan costs were estimated to increase by $4.5 billion in 2014 if the Medicare eligibility age is raised to 67. In addition, public and private employers offering retiree health benefits would be required to account for the higher costs in their financial statements as soon as the change is enacted,” Kaiser said in its report.
Options identified by Kaiser for reducing the cost of pre-65 retiree health coverage include “strategies to avoid or minimize the impact of the excise tax (a.k.a. the Cadillac tax) on high-cost plans included in the ACA. Although the tax applies to plans for active employees, as well as pre-65 and Medicare-eligible retirees, there is a focus on pre-65 coverage because of its relatively higher cost. And even though the tax takes effect under the PPACA in 2018, employers must begin to account for any material impact the tax may have on their retiree health programs in today’s financial statements.”
Kaiser also said shifting pre-65 retirees to private and public exchanges, moving to a defined contribution plan, and changing plan design to shift costs to employees are all receiving more attention.
Also, employers are increasingly choosing to trim the cost of drug programs away from plans that provide coverage to Medicare-eligible retirees.
Kaiser concludes that company-sponsored health coverage for retirees will inevitably recede from the benefits landscape.
“Over the next few decades, these trends suggest that employer-sponsored supplemental coverage is likely to be structured differently and play a smaller macro role in retirement security than it has in the past and than it does today. Relatively fewer workers will have such coverage available in the future, to be sure.”
Originally posted April 14, 2014 by Dan Cook on www.benefitspro.com.
Financial fears have many workers planning to delay retirement
Originally posted by Melissa A. Winn on https://ebn.benefitnews.com
Although U.S. workers on a whole are more satisfied with their current financial situation than in years past, most (58%) remain concerned about financial stability in retirement and say they plan to continue working until age 70 or later, a new Towers Watson survey shows.
With many workers expecting to fall short on their retirement savings, nearly four in 10 plan on working longer, an increase of 9% since 2009. A large majority of these employees expect to delay retirement by three or more years and 44% plan on a delay of five years or more, the Global Benefit Attitudes Survey finds.
In 2009, 31% of workers planned on retiring before 65, and 41% planned on retiring after 65. According to the 2013 survey, only 25% plan on retiring before 65 and half expect to retire after 65. One in three employees either does not expect to retire until after 70 or doesn’t plan to retire at all.
The nationwide survey of 5,070 full-time employees found that nearly half of respondents (46%) are satisfied with their current finances, a sharp increase from 26% in 2009. Still, nearly six in 10 remain worried about their financial future.
Employees’ confidence in their ability to retire has also climbed steadily since the financial crisis, with nearly a quarter (23%) very confident of their income sufficiency for the first 15 years of retirement. However, only 8% are very confident they’ll have adequate income 25 years into retirement.
“Employees might be on firmer financial footing now than they were five years ago, but many remain nervous about their finances and prospects for a secure retirement,” says Shane Bartling, senior consultant at Towers Watson. “This is especially true for older workers who are likely better positioned to assess their retirement income than workers overall. The financial crisis hit workers age 50 and above particularly hard, with the stock market fall creating a huge dent in their retirement savings and their confidence levels.”
The survey also finds that employees of all ages are especially worried about health care costs and public programs. Only two in five employees believe they can afford any medical expenses that arise in the next 12 months and more than half of all employees (53%) are concerned they will not be able to afford health care in retirement. Most employees (83%) also believe Social Security will be less valuable in the future and 88% have similar fears about Medicare.
More than half of employees (56%) say they are spending less and postponing big purchases as a way to pay down debt and start saving for retirement, the study says. Just over half (51%) of employees say they review their retirement plans frequently.
Saving for retirement is cited as the No. 1 financial priority for all employees age 40 and older, the study notes.
“Employers and employees are both facing increasing retirement pressures. Employers understand that they have a role to play in helping their workers plan and save for a secure retirement. Today’s employees are considerably more engaged, and are looking to their employers for more information about health care costs and the value of their retirement programs,” says Bartling. The increased use of tools, including mobile apps, also represents an opportunity “for employers to help their employees plan for a successful retirement.”
Retirement confidence rebounds from five-year lull
Originally posted March 18, 2014 by Michael Giardina on https://ebn.benefitnews.com
Retirement confidence among Americans regained some of the losses reported over the past five years – where approximately 18% are very confident and 37% are somewhat confident with the future financial needs – according to a new survey from the Employee Benefit Research Institute.
In its 24th installment, the EBRI annual Retirement Confidence Survey states that there was a 5% point jump in Americans workers who reported they were very confident and there was no statistical change among the population that were not at all confident at 24%.
Last year, 21% reported that they were not too confident and 28% - the highest level in the survey’s history – are not at all confident about the future needs of a comfortable retirement. 2013’s lowly sentiment also resonated with the very confident and somewhat confident, which reported 13% and 38% markers, respectively.
The Washington, D.C.-based nonpartisan, nonprofit research organization states that there was a 10% jump in worker confidence with a retirement plan who report being very confident at 24%. For the cohort without a retirement plan, the very confident level dipped down one percentage point to 9%.
“Retirement confidence is strongly related to retirement plan participation,” says Jack VanDerhi, EBRI research director and co-author of the 2014 report. “In fact, workers reporting that they or their spouse have money in a defined contribution plan or IRA or have a defined benefit plan from a current or previous employer are more than twice as likely as those without any of these plans to be very confident.”
The findings indicate that 1 in 10 of participant households currently enrolled in a retirement plan were listed as being not at all confident. At the same time, half of respondents without a retirement plan reported the same confidence level.
While 64% of workers report that they or their spouses have saved for retirement – a statistically equivalent figure to 2013 – 90% of workers currently signed up to a retirement plan list they have saved for their future income needs when they exit the workforce.
Also, retiree confidence, typically higher than worker confidence levels, continues to climb in 2014. Twenty-eight percent felt were very confidence in their financial security, a 10% jump from 2013.
Roughly half of participants state that financial hurdles such as the cost-of-living and daily expenses – as well as lingering debt – hinder worker savings.
“Just three percent of workers who describe their debt as a major problem say they are very confident about having enough money to live comfortably throughout retirement, compared with 29 percent of workers who indicate debt is not a problem,” says Matt Greenwald, of Greenwald & Associates, which conducted and co-sponsored the survey.
During America Saves Week earlier this year, Dallas L. Salisbury, president and chief executive officer of the EBRI and chairman of the American Savings Education Council, highlighted that employers can assist with the current savings epidemic. Salisbury explained that workers who conducted retirement-needs calculation were more confident to save what is needed for retirement. Complementing this goal, he says that the theme for this year’s America Saves Week is “to set a goal, to make a plan and to save automatically.”
Other findings of this year’s RCS:
- Workers acknowledge the need for savings: Approximately 22% of the sample believes that they need to save between 20-29% of their income and another 22% believe that 30% of income is warranted.
- Estimating retirement savings needs is still unpopular: Roughly 44% state that they and/or their spouse have participated in this calculation.
- Financial advice is even less popular and falls on deaf ears: one in five workers and 25% of retirees report they have sought the help of a financial adviser; Only 27% of workers and 38% of retirees say they used all of the professional’s financial advice.
4 Retirement Mistakes 30-Somethings Make -- And How They Can Avoid Them in 2014
Originally posted by Nancy Anderson on https://www.forbes.com
Any wise financial planner knows to get a second opinion on her own retirement plan. So I wasn’t surprised when a 30-year-old colleague asked me to be her second look, and I gave her my opinion freely.
As you’d expect from a Certified Financial Planner ™ professional, she had her basics down. She had an emergency fund with six months of her net income, no credit card debt, and she was on track to replace her income in retirement. In fact, at the rate she is going, she will replace over 100% of her income in retirement. When I reflected on our meeting later, I wondered why more 30-year-olds aren’t as prepared as she is.
But then I realized that she is in the industry, and is not making a lot of false assumptions that other younger people make. Decisions based on the wrong information can lead to costly mistakes, and the results could be as serious as having to delay retirement or living on a reduced income later.
Here are four false assumptions that a lot of people in their 30s make—and ways to help them to stay on the right track for retirement.
1. They assume it will be easier to save in the future. The truth is that your 30s can be an expensive decade. Many people are establishing a household, having children and buying a home, along with all the furnishings that go in it. So it may actually be more difficult to save in your 30s than in your 20s. My colleague started saving the absolute maximum she could in her late 20s, knowing that she wanted a house and family someday. She figured, correctly, that even though her income might grow exponentially in her 30s, her expenses might surpass her income.
Tip for 30-somethings: Seriously consider maximizing retirement savings earlier in your career, knowing that you may have gaps in savings in the future.
2. They don’t verify that they are on track for their retirement goals. My colleague runs her own retirement calculations all the time. She wanted a second set of eyes to see what she might be missing, as well as some high-level strategies. According to recent research from BlackRock BLK +1%, more than 4 in 10 people surveyed weren’t saving because they hadn’t run retirement calculations and didn’t know how much they needed to save. But almost 8 in 10 said they would start saving or increase their contributions if they knew how much they needed to save. Since the new model of retirement planning consists of employees managing their own retirement with a defined contribution plan, it’s important to be proactive.
Tip for 30-somethings: At a minimum, run a retirement calculation. Some calculators to get you started and here and here. Meeting with a Certified Financial Planner ™ professional can be one way to get started on your financial plan. Some resources that can help include Let’s Make a Plan andLearnVest (use discount code Retire50).
3. They assume the 401(k) is the “be all, end all.” There are major benefits to investing in an employer’s retirement plan. First of all, you can never underestimate the value of automatically deducting funds from a checking account. When funds are invested before ever hitting your bank account, you simply can’t spend that money. And company-matching contributions are obviously a significant benefit. Employees who receive a company match should invest at least up to the matching contributions in their 401(k).
But don’t ignore the Roth IRA. The tax-free retirement benefit of the Roth is well known, but many folks may not realize how much flexibility the Roth has. The principal amount can be withdrawn for any reason and at any time, without a tax penalty. This serves as a back-up emergency fund, but also gives an investor flexibility to reinvest the principal into something else, such as a down payment on a primary residence or on an investment property. For someone in his or her 30s, a Roth IRA can be the best of both worlds: Investing for retirement and having some flexibility to withdraw the principal without hefty taxes. (A Roth investment is post-tax; meanwhile, a 401(k) carries a 10% early withdrawal penalty.)
Tip for 30-somethings: It can be wise to invest in the 401(k) up to the amount matched by your company. Over and above the company match, consider investing in a Roth IRA.
4. They assume all funds are created equal. Albert Einstein is rumored to have said that compound interest is the most powerful force in the universe. Compounding fees, on the other hand, are another story. When you pay high annual fees on the funds in your retirement accounts, the compounding works against you. For example, an investor with a $50,000 balance who pays 1.5% in annual investment fees on an account that earns 7% annually would pay about $138,000 in total expenses over 30 years, including opportunity costs. Everything else being equal, that same investment with fees at 0.5% would only incur about $53,000 in total expenses and opportunity costs. Something as seemingly insignificant as a 1% difference in annual fees can add up to an $85,000 difference over time.
Tip for 30-somethings: Think about investing in low-fee mutual funds or index funds in your 401(k). See your fund’s prospectus for full disclosure on fees. Click here to see how expenses impact mutual fund returns, as calculated by calcxml.com.
Albert Einstein also said that anyone who has never made a mistake has never tried anything new. But frankly, in terms of retirement planning, it’s better to start off strong by not making mistakes in the first place. If you really want to try something new, there’s always hang gliding.
Gen Xers post biggest gap in life insurance coverage
Originally posted September 23, 2013 by Margarida Correia on https://ebn.benefitnews.com
What people say doesn’t always align with what they do. Such is the case with life insurance, a study commissioned by New York Life finds.
According to the study, most Americans don’t buy enough life insurance to secure the level of protection they say they would want for their families if they were to die. The average American registered an insurance shortfall of $320,000.
Generation Xers posted the biggest gap of any age group. Although average Gen Xers said they would want their life insurance policies to cover $708,996, they purchased only $260,000 in coverage, creating a coverage gap to $448,996. Millennials and baby boomers, in contrast, had gaps of $370,744 and $267,016, respectively.
The gap has widened substantially for Gen Xers since the financial crisis. From 2008 to 2013, the amount of life insurance coverage they have in place fell 35% to $260,000 from $400,000. The gap impacts more than half (56%) of Gen Xers, according to the study.
“Gen Xers have been severely impacted by the economic downturn and the gap is a clear indication of what is at risk. Gen Xers, who may be focused on financial obligations that have to do with their children, their home, planning for retirement and maybe even taking care of their elderly parents, are lacking a foundation of financial protection that life insurance provides,” says Chris Blunt, president of the Insurance Group at New York Life.
The study is based on two separate surveys, both of which polled 1,000 Americans age 25 and over with dependents and annual household incomes of at least $50,000. One survey was conducted online by The Futures Company from April 24 – May 1, 2013. The other was conducted by Greenwald & Associates via telephone in May 2008.
Employers pushing hard for lower 401(k) fees
Originally posted December 05, 2013 by Dan Cook on https://www.benefitspro.com
Just as they are combing through health plans looking for cost-cutting opportunities, so are employers trimming the fat off employee 401(k) plans. However, in general, they are attempting to do so without sacrificing investment quality. Plans with lower fees have become popular, as have those that offer participants more options, some of which combine lower fees with solid returns.
All of these observations come to us fresh from an Aon Hewitt survey of 400 defined contribution plan sponsors. Their plans cover more than 10 million employees with a total of $500 billion in retirement assets. These sponsors were asked about their retirement benefits strategies, plan designs and investment structures.
When last asked about such matters in 2007, just more than half of the respondents said they were working to reduce fund or plan expenses. This time around, more than three-quarters said they looking for ways to cut such costs.
The most common methods for doing so were switching share classes to less costly alternatives (62 percent) and swapping out funds for lower-cost alternatives (50 percent).
The survey identified lower fees are the No. 1 reason for choosing fund options. Other top factors included historical investment performance and fund investment process. Once powerful factors such as name recognition and availability in public sources were no longer seen as priorities.
“One of the most direct ways to increase participant balances is to increase their returns, which can be done effectively by decreasing investment fees without sacrificing investment quality,” said Rob Austin, director of Retirement Research at Aon Hewitt. “Even small changes in 401(k) fees can have a significant impact on employees’ nest eggs over time. For example, decreasing fees from 1 percent to 0.75 percent per year has the same effect on a typical participant as contributing an additional 0.50 percent of pay. This ultimately translates into thousands of dollars more in retirement savings.”
Other highlights from the Aon survey:
More than 90 percent of employers offered non-mutual fund alternatives — such as collective trusts and separate accounts — in their 401(k) menus, compared to 59 percent in 2007.
44 percent chose these alternatives as their primary fund options in 2013, compared to just 19 percent in 2007.
30 percent offered plan participants emerging market funds this year, compared to 15 percent in 2007.
14 percent offers participants short-term bond funds, compared to 8 percent in 2007.
Another trend spotted by the survey: Large increases in the index approach were found in mid-cap equity (59 percent in 2013 vs. 42 percent in 2011), intermediate bond (53 percent in 2013 vs. 42 percent in 2011), and international equity (50 percent in 2013 compared to 31 percent in 2011).
Many expect to retire after 70
Originally posted September 13, 2013 by Paula Aven Gladych on https://www.benefitspro.com
The number of Americans who expect to retire by age 65 has dropped dramatically since 1991, while the number who expect to retire after 70 has shot up, according to a report by the Employee Benefit Research Institute.
One-quarter of workers in EBRI’s 2013 Retirement Confidence Survey said that the age at which they expect to retire has changed in the past year, and of those, 88 percent believe their expected retirement age has increased.
Twenty-two percent of all workers said they would postpone their retirement. The reality, however, is that even though those people want to work longer, health issues and their employers could prevent them from doing that.
In 1991, only 11 percent of workers expected to retire after age 65. Now that number is 36 percent, while 7 percent of those surveyed don’t expect to retire at all, according to EBRI.
The number of individuals who thought they could retire before age 65 also has decreased steadily over time.
In 1991, 19 percent of survey respondents thought they could retire before age 60 and 31 percent thought they would retire between ages 60 and 64. In 1998, those numbers were still high at 24 percent and 25 percent respectively.
By this year, only 9 percent of respondents thought they would be able to retire by age 60 and 14 percent thought they could do it by age 64.
Twenty-six percent of respondents said they expected to retire at age 70 or older, up from 9 percent in 1991 and 7 percent in 1998.
The Employee Benefit Research Institute is a private, nonpartisan research institute based in Washington, D.C. It focuses on health, savings, retirement and economic security issues.
Tools to Better Understand Your 401(k)
Originally posted September 11, 2013 by Philip Moeller on https://money.usnews.com
The Lifetime Income Disclosure Act proposed in May seems to have a reasonable objective: help people determine how much retirement income would be produced by their 401(k). For years, financial experts have touted the benefits of helping consumers understand their retirement trajectories. Otherwise, how will they know if they're on the right track to a successful retirement?
Reasonable or not, the legislation has become a perennial in the garden of consumer finance proposals. It gets introduced. Consumer groups applaud it. Investment firms say the goal has merit. Then they raise a host of operational problems in implementing such a law. Leading the list is their opposition to pretty much any government mandate. They prefer voluntary compliance.
[Read: How to Take Control of Your 401(k).]
Fidelity, the biggest provider of retirement accounts, responded last month to U.S. Department of Labor proposals to implement lifetime income disclosure rules: "Information provided in a static format does not promote participant engagement," Fidelity wrote in a letter to the labor department. "As an equally important consideration, the disclosures that would need to accompany the projections and illustrations would greatly add to both the length and complexity of participant statements, increasing the risk of reader disengagement from any of the information provided on the statement."
Please raise your hand along with me if you aren't really sure what this means. In Fidelity's defense, adding any additional required materials to customer statements may produce diminishing returns. Consumers have greeted recent expansions in 401(k) statements – aimed to provide more transparency to account fees and performance – with disinterest.
Many other investment firms also weighed in with their own objections. More fundamentally, exactly what assumptions about future investment returns and rates of inflation should be used in calculating lifetime income projections? What is the ideal or "right" rate of withdrawing assets from a plan during retirement? Even Nobel Prize winners wouldn't agree on such numbers.
What does Washington say? Here is the description provided by the Congressional Research Service of the current version of the proposed law:
"[The Lifetime Income Disclosure Act] requires such lifetime income disclosure to set forth the lifetime income stream equivalent of the participant's or beneficiary's total benefits accrued. Defines a lifetime income stream equivalent of the total benefits accrued as the monthly annuity payment the participant or beneficiary would receive if those total accrued benefits were used to provide lifetime income streams to a qualified joint and survivor annuitant.
"Directs the Secretary of Labor to: (1) issue a model lifetime income disclosure, written in a manner which can be understood by the average plan participant; and (2) prescribe assumptions that plan administrators may use in converting total accrued benefits into lifetime income stream equivalents."
[Read: 3 Highly Personal Threats to Your Retirement.]
Are we all clear on this?
In the interest of plain language – whether driven by government mandate or voluntary industry compliance – employees and retirees with 401(k)s and individual retirement accounts would be better off with clear answers to practical questions. Here are 10 basic retirement plan questions that merit clear and helpful answers, and some tips about trends and where to find answers.
1. Based on your current 401(k) contribution level and investment results, what kind of retirement is in store for you?
The Employment Benefit Research Institute does an annual retirement confidence survey that contains troubling conclusions about the state of retirement prospects for many Americans. The 2013 survey results can be found at https://www.ebri.org/surveys/rcs/2013/.
2. Do you know what your Social Security benefits would be for different claiming ages?
The Social Security Administration has a tool to provide you access to your earnings history and projected benefits at www.ssa.gov/myaccount.
3. Are you saving enough?
Most people should be saving 10 to 15 percent of their salaries, with higher levels needed for those who wait until their 40s to get serious about retirement savings. Yet most people are saving far less.
4. How much money do you have?
Make a date with yourself to spend an hour with your latest plan statement. It may be time very well spent.
5. What are you paying in fees?
Investment management companies have been steadily lowering retirement plan fees in response to sustained criticism and competition from Vanguard and other low-fee investment firms. The Department of Labor has a primer on retirement plan fees at www.dol.gov/ebsa/publications/undrstndgrtrmnt.html.
6. How has your account performed?
See the advice for question #4.
7. How does your 401(k) performance compare with other investment choices you can make within your plan?
This will require more work on your part, but your plan statement and usually your plan's website will include tools to let you look at investment returns of the various funds and other investment choices offered by the plan.
[See: 10 Things to Watch When Interest Rates Go Up.]
8. How does your performance compare with investment results in the plans of other companies?
Check out BrightScope at www.brightscope.com or Morningstar at www.morningstar.com/Cover/Funds.aspx.
9. What is your employer's match policy, how does it compare with industry standards and are you taking full advantage of the match?
Smart401k provides a helpful discussion of employer matches at https://www.smart401k.com/Content/retail/resource-center/retirement-investing-basics/company-match.
10. If you change jobs, what are you going to do with your current employer's 401(k)?
Many people cash in their retirement plans when they change jobs instead of rolling them over into new plans or IRAs. Most of them are making a mistake.
3 obstacles on the road to retirement readiness
Originally posted August 28, 2013 by Robert C. Lawton on https://ebn.benefitnews.com
Participants can be their own worst enemies. Shlomo Benartzi, a leading authority on behavioral finance, has identified the following three obstacles that plan sponsors need to overcome to propel participants successfully down the road to retirement readiness:
1. Inertia
Plan sponsors are probably most familiar with employee inertia. The incorporation of "auto" features — auto-enrollment, auto-escalation and auto re-enrollment — into 401(k) plans, along with the addition of professionally managed investment options like target-date funds, can successfully address employee inertia. Vanguard and The Newport Group report that approximately one-third of the 401(k) plans they administer have auto features. Experts believe that within three to five years the majority of 401(k) plans will adopt these plan design elements.
2. Loss aversion
Loss aversion may be characterized as valuing the avoidance of loss over the accrual of gains. In other words, participants are more afraid of losing money than they are of not having enough money (as a result of investing too conservatively). In order to overcome this obstacle plan sponsors need to offer target-date funds. Most experts believe that 75% to 85% of all plan participants should be invested in target-date funds. When left on their own, participants tend to invest too conservatively to keep pace with inflation, or they are prone to attempt to market time, resulting in significant losses.
Model or lifestyle portfolios aren't a solution here since employee inertia comes into play. Both of these types of professionally managed investment options require a positive employee election to move to more conservative options over time. Target-date funds do not require any employee interaction since the investment manager adjusts the risk level of the portfolio as time goes by.
3. Myopia
Myopia is the hardest factor to overcome. Participants have a tendency to focus on immediate, short-term goals rather than planning for their future. Many participants view the process of saving as difficult and not worthwhile. For example, they may feel that they will be too old to ever enjoy their savings, or they may believe they will pass away before they are able to retire. Regardless of the reason, participants are not eager to fund a future they have a difficult time envisioning. Employee education is the only effective tool to fight myopia.
Plan sponsors who adopt these plan design, investment and employee education elements have a much better chance of seeing their participants achieve retirement readiness.
How to Take Control of Your 401(k)
Originally posted August 27, 2013 by Scott Holsopple on https://money.usnews.com
A recent survey by Charles Schwab of 1,000 401(k) participants said that 52 percent of those polled find their 401(k) plan more confusing than their health insurance benefits. That's pretty impressive, given that I don't think I know anyone who claims to understand their medical coverage. Fifty-seven percent desired an easier way to choose their 401(k) investments.
Despite the bad press the 401(k) plan sometimes receives for its complexity and for requiring plan participants to become investors whether they want to or not, the fact remains that it is a great way to save for retirement. For many people, it's their only retirement savings vehicle. Sure, if you don't have much interest in investing and finance, you might find it confusing to manage your account — but it's up to you to do something about it.
Being a 401(k) plan participant requires you to take charge of your retirement saving and investing, so don't let confusion or uncertainties leave you on the sideline. Instead, here are five things you can do to step up:
- Embrace the power and control you have, and think hard about how to use it. Spend some time seriously thinking about your retirement saving and investing needs. Jump on some educational websites and do some reading to familiarize yourself with basic investing terminology and the types of investments to which you have access.
- Take action by creating a retirement saving and investing plan. Outline the amount you plan to contribute now and in the future in order to reach your retirement goals.
- Take advantage of your 401(k) plan's features. Many plans offer ways to maximize your participation such as an employer match, educational resources and advisory services that can help you pick the right funds to support your retirement goals.
- Check to see if your plan offers an auto-increase contribution feature, which automatically increases your contribution rate by a small amount each year (or more frequently, if you like). If your plan doesn't offer auto-increase set up calendar reminders and increase your contributions yourself. Either way, you need to save as much as you can and regular contribution increases can help you get there.
- Once you've established your strategy, stick to it. Paying too much attention to market fluctuations can cause some investors to run scared. A long-term view is what's needed, rather than concentrating on your account balance on any one day.
The 401(k) plan might not be perfect, but you stand to gain a lot when you take advantage of being in the driver's seat — just a little know-how can make a big difference when it comes to your 401(k) and financial future.