10 tips to boost retirement savings
Do you need help boosting your savings for your retirement? Check out these great tips from Benefits Pro on how to increasing your retirement savings by Marlene Y. Satter
Americans are struggling to save enough money for retirement.
Now that pensions are going the way of the dodo and workers are relying primarily on Social Security and 401(k) plans—the latter if they’re lucky—it’s a struggle to find extra money to set aside against the day they leave the workplace.
In fact, many workers never plan to retire.
Considering how many workers don’t even have access to a retirement plan at work, trying to stretch dollars even a little bit further to set aside money for retirement can be a real challenge.
That’s pretty clear from the zero-to-minimum savings held by many Americans.
In fact, with 40 million working-age households lacking any retirement savings at all, and the average balance of retirement accounts a pitiful $2,500 across all households, it’s obvious that something needs to be done. But how much can people do on low incomes, fighting against the gender wage gap and shrinking benefits packages?
Perhaps it’s only baby steps they can take, but even those baby steps can pay off over the span of a career. So here are some suggestions that workers could definitely benefit from on how they might be able to squeeze just a little more out of that paycheck.
Depending on a worker’s age, some of these strategies will be more helpful for some than for others—but all can make a difference in the end result: stashing away enough money to pay for retirement.
Courtesy of a range of sources, including Schwab Retirement Plan Services, Forbes, Fidelity and others, here are 10 strategies to help workers boost their retirement savings.
10. Take advantage of the employer match.
If you’re lucky enough to work at a company that provides a 401(k) plan, Schwab suggests that you make sure your contribution level is high enough to take full advantage of the employer matching contribution.
Not saving enough to get the full employer match is leaving free money on the table. Look for economies elsewhere (fewer trips to the barista, brown-bag lunches) to increase your contribution till you get the full benefit of whatever your employer is willing to give.
9. No matter what you’re saving, keep increasing it.
Some people up their retirement contributions every time they get a raise; others do it when they hit some other significant milestone, such as an anniversary with the company.
Schwab, again, suggests that whether it’s a performance review, a birthday or some other occasion, you keep raising your retirement contribution even if it’s only by one percent at a time. It will all add up by the time you’re ready to retire.
8. Automate retirement plan increases.
While you’re busy increasing those contributions, automate them.
Set up an automatic increase that will add to your savings at regular intervals, even if you forget.
That way, whether you’re the type that actually remembers those special occasions on which you plan to boost contributions or you forget them, you can set it and forget it—and your retirement plan will do the rest.
7. Don’t forget the catch-up contribution.
If you’re 50 years old or older, remember that you’re allowed to put an extra $6,000 into your retirement account to catch up to where you ought to be.
That can help a lot as you approach retirement, particularly if you haven’t saved the maximum allowable in years past.
6. Check the fees on your investments.
This one doesn’t actually require you to find additional money to save. What it does require is that you review the investments in your retirement accounts and see how much the fees add up to.
If there are cheaper investments available in your plan—exchange-traded funds, for example, or target-date funds that offer lower fees—make sure they’re suitable for your particular needs and risk tolerance and then, if they’re appropriate, make the switch. Cutting down on the fees you pay will keep your balance growing.
5. Put yourself on a budget.
Particularly if you haven’t saved all that much for retirement and the Big Day is drawing near, see if you can adjust to a budget that reflects lower spending levels—something you might have to do in retirement anyway, if money is tight.
Whether or not you can sustain living on that budget, while you’re experimenting, take any money that you save from your usual outlay and put it into your retirement account. Better yet, open a Roth if you’re eligible. You’ll have already paid taxes on the money, if it’s coming out of your regular pay, and when you take it out of a Roth however much it’s grown to will be tax free. That will save you money both now and then.
4. Look into your health savings account.
If your benefits plan at work includes an HSA, check it out as a potential investment vehicle. While most people just put money in it to pay approved medical expenses, many don’t know that they can actually invest the money in an HSA and just let it grow; it’s not a use-it-or-lose-it account.
If it grows into retirement, you can then use the money to pay approved medical expenses tax free, which will stretch your other retirement savings further. (You can also use it for nonapproved expenses, but you’ll have to pay tax on the money upon withdrawal if you do that.)
3. Make sure you’re using the right kind of account.
Don’t just stick your money into a savings account and wait for retirement. Check out the potential of and differences among different types of accounts—savings, HSAs, Roths, traditional IRAs, 401(k)s—and put your money where you’ll get the most bang for the buck.
Contribute the maximum to your 401(k) to get full matching funds at work, and then look into opening a traditional or a Roth IRA. As previously mentioned, if you’ve already paid taxes on money contributed to a Roth, when you withdraw it in retirement it will be tax free (so it will go further).
2. Don’t forget about the Saver’s Credit.
Your income and income tax filing status determine whether you’re eligible for this one, aimed at low- to moderate-income households, but it’s a goodie—and if you’re married and filing jointly, both of you might be able to claim it.
The program, the official name of which is the Retirement Savings Contributions Credit, can give you $1,000 for contributing to a qualifying retirement account. Whether your retirement plan is an IRA, a 401(k), 403(b), 457(b) or even a SEP or SIMPLE IRA, you contribute the allowable amount, assuming your income level makes you eligible, and the government credits you 10 percent, 20 percent, or 50 percent of the first $2,000 you contribute to retirement savings for the year.
1. Remember that payroll contributions to a retirement plan can lower your taxes.
Yes, by following the instructions in earlier steps and boosting your retirement contribution at work, you could lower your tax bracket—and that could have you losing less of your take-home pay to increase that contribution than you thought.
Depending on your withholding rate, an increased retirement contribution might hurt less than you think—and that can encourage you to do even more. You can check with human resources or the payroll department to find out just how much the hit will save you. And who knows? It might lower your adjusted gross income enough to let you qualify for the Saver’s Credit—a real win-win situation.
See the original article Here.
Source:
Satter M. (2017 March 07). 10 tips to boost retirement savings [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/03/07/10-tips-to-boost-retirement-savings?ref=mostpopular&page_all=1
Why employers should rethink their benefits strategies
Has your employee benefits program grown old and stale? Take a look at the great article from Employee Benefits Advisors about the benefits of upgrading your employee benefits to match your employees' needs by Chris Bruce.
Historically, employee benefits have been viewed as a routine piece of the HR process. However, the mentality of employees today has shifted, especially among the growing population of millennial employees. Today’s workforce expects more from their employers than the traditional healthcare and retirement options, in terms of both specific benefit offerings and communications about those offerings.
For companies, it’s critical they address the evolving needs of their workforce. With unemployment rates plunging to their lowest levels since before the financial crisis, the search for talent is heating up, and organizations need to work harder than ever to retain top talent in a competitive job market. To do this, I see three steps that organizations need to take when rethinking their benefits strategy and engaging with employees: embrace a proactive rather than reactive benefits strategy, think digital when it comes to employee communications and consider the next generation of employee benefits as a way to differentiate from the competition.
1. Reconsider your benefits evaluation process
The benefits process at most companies is reactive — executives and HR only look to evaluate current offerings when insurance contracts expire or a problem emerges. When the evaluation does happen, the two factors that often concern employers the most are product and price. Employers often gravitate toward well-known insurers that offer the schemes that appear familiar. However, this can often lead companies to choose providers who fall short on innovation and overall customer experience for employees.
This approach needs to be flipped on its head. Companies should be proactive in determining which benefit schemes best meet the needs of their workforce. The first step is going straight to the source: talk to employees. Employers can’t know what benefits would be most appealing to their employee base unless they ask. By turning the evaluation process to employees first, companies can better tailor new benefits to meet the needs of their workers, and also identify existing benefits that might be outdated or irrelevant, therefore saving resources on wasted offerings.
Data and analytics also are playing an increasing role across the HR function, and benefits is no exception. By leveraging technology solutions that allow HR to track benefits usage and engagement, teams can better determine what is resonating with employees and where benefits can be cut back or where they should be ramped up.
2. Put down the brochure and think digital engagement
Employee education is another area of benefits that can often perplex companies. According to a recent survey from Aflac, half of employees only spend 30 minutes or less making benefit selections during the open enrollment period each year. This means employers have a short window of time to educate employees and make sure they are armed with the right information to feel confident in their benefits selection.
To do this effectively, HR needs to move past flat communication like brochures, handouts and lengthy employee packets and look for ways to meet employees where they live — online. By testing out innovations that create a rich experience, while still being simple and intuitive, employers can grab the attention of their workforce and make sure key information is communicated. For example, exploring opportunities to create cross-device experiences for employees so they can interact on-the-go, including augmented reality applications or digital interactive magazines. Additionally, for large corporations, hosting a virtual benefits fair can provide a forum for employees to ask questions in a dynamic setting.
3. Embrace the next-generation of benefits
As organizations become more savvy and nimble, personalization will have a huge impact in encouraging employee engagement and driving satisfaction among today’s increasingly diverse workforce. We have already started to see some companies embrace this new approach to benefits, adding out-of-the-box items to normal offerings — from debt consolidation services and wearable health tracking technology to genome testing and wedding concierge services.
The fact is, the days of “status-quo” benefits are gone, and employees today want benefit options that match their current life circumstances. To best engage employees, organizations need to be proactive in evaluating benefits regularly and using analytics to track usage, identify opportunities to implement digital communication elements and look for ways to introduce new benefits to meet the needs of their employee base. By following these steps, organizations can gain a competitive edge when it comes to attracting and retaining top talent.
See the original article Here.
Source:
Bruce C. (2017 March 10). Why employers should rethink their benefits strategies [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/opinion/3-steps-employers-can-take-to-rethink-benefits-strategy?feed=00000152-1377-d1cc-a5fa-7fff0c920000
How are your retirement health care savings stacking up?
Are you properly investing in your health saving account? Take a look at the this article from Benefits Pro about the importance of saving money for your healthcare by Reese Feuerman
For all ages, it's imperative to balance near-term and long-term savings goals, but the makeup of those savings goals has changed dramatically over the past 10 years.
With the continued rise in health care costs, and increased cost sharing between employers and employees, more employees and employers have been migrating to consumer-driven health care (CDH) to provide lower-cost alternatives.
With the increased adoption in these plans for employee cost savings purposes, employers have likewise realized similar cost savings to their bottom line. But what role does CDH play in the long term?
The Greatest Generation was able to rely on their pensions, Social Security, Medicaid, and the like as a means to support them in retirement for both medical and living expenses. However, as the Baby Boomers continue their journey towards retirement, reliance upon future proof retirement funds are fading into the sunset for coming generations. According to a 2015 study from the Government Accountability Office (GAO), 29% of American’s 55 and older do not have money set aside in a pension plan or alternative retirement plan.
To make matters worse, some experts are forecasting Social Security funding will be depleted by 2034, leaving even more retirees potentially without a plan. As such, Generation X and beyond must look for more creatives measures for savings to make up the difference.
In 1978, 401(k) plans were introduced to provide the workforce with a secondary means for retirement savings while also providing significant tax benefits. However, even when actively funded, with rising health care costs and a depleted Social Security system—the solution this workforce has paid into for their entire career—will not be enough.
According to Healthview Services, the average retiree couple will spend $288,000 for just health care expenses during retirement. This sum could easily consume one-third of total retiree savings. This is a contributing factor to the rise and rapid adoption of tax-advantage health accounts to supplement retirement savings. Introduced to the market in 2003, Health Savings Accounts (HSA) have provided employees with an option to set aside pre-tax funds to either cover current year health care expenses, like the familiar Flexible Spending Account (FSA), or carry over the funds year-over-year to pay for medical expenses later or during retirement. The pretax money employees are able to set aside in these accounts to cover health care expenses, will over time, be on par with retirement savings contributions, such as a 401(k) and 403(b), because of increasing costs and triple-tax savings.
It is important for consumers to understand these retirement options and how they could be leveraged for greater financial wealth. As a result, the Health Care Stack, an analysis authored by ConnectYourCare, acts as a life savings model and illustrates the amount of pretax money consumers can contribute for both their lifestyle and health expenses in retirement.
For illustrative purposes, according to current IRS guidelines, the average American under the age of 50 could set aside up to $24,750 each year pre-tax for retirement to cover their health care and living expenses. In this example, if a worker in his or her 30s starts to set aside the maximum contributions (based on IRS guidelines) for HSA contributions, assuming a rate of return of 3%, they would have $330,000 saved in their HSA to cover health care expenses once they reach the retirement age of 65. This number could be even greater if President Trump’s administration passes any number of proposed bills to increase the HSA contribution limits to match the maximum out-of-pocket expenses included in high deductible health plans. This allocation would not only cover average medical expenses, but also provide a triple-tax advantage for consumers from now through retirement.
In addition to the long-term retirement goals, the yearly pre-tax savings may be even greater if notional accounts are factored in, with approved IRS limits of a $2,600 per year maximum for Flexible Spending Accounts, $5,000 per year maximum for Dependent Care FSA, and $6,120 per year maximum for commuter plans. This equals $38,470 (or $44,820 if HSA contributions increase) of pre-tax contributions that consumers could save by offsetting the tax burden and could invest towards retirement.
For those consumers over the age of 50, the savings potential is even greater as they can contribute to a post retirement catch-up for their 401K plans equaling a total of $24,000, plus they may take advantage of the $6,750 HSA savings, as well as the additional $1,000 catch up. If certain proposed bills are passed, the increase could be $38,100 a year that they could set aside, in pre-tax assets, for retirement.
Not only will an individual’s expenses be covered, but there are other benefits brought forth by proper planning, including the potential to reach ones retirement savings goals early. Let’s say that after meeting with a licensed financial investor it was determined that an individual needed $1.8 million in order to retire, and according to national averages, close to $288,000 to cover health care costs.
Given the proper investment strategy around contributions to both retirement and HSA plans, an individual could - theoretically -save enough to meet their retirement investment needs by the age of 60 for both lifestyle and health care expense coverage, if they started making careful investments in their 20s (assuming the worker is making $50,000 per year with a 3% annual increase).
In comparison, under current proposals, which include the increased HSA limits, retirement savings could be achieved even earlier with the coverage threshold being at 57 for the average worker. This is a tremendous opportunity to transform retirement investment programs for all American workers who would otherwise be left on their own. Talk about the American dream!
While there is not a one-size fits all strategy, it is important for everyone to understand their options and see how these pretax accounts outlined in the Health Care Stack play an important consideration in ones future retirement planning.
Taking the time now to fully understand tax-favored benefit accounts will provide him or her with the appropriate coverage to enjoy life well into their golden years. Retirement is just around the corner, are you ready?
See the original article Here.
Source:
Feuerman (2017 March 02). How are your retirement health care savings stacking up?[Web blog post]. Retrieved from address https://www.benefitspro.com/2017/03/02/how-are-your-retirement-health-care-savings-stacki?ref=hp-in-depth
Two-thirds of Americans aren’t putting money in their 401(k)
Did you know only about a third of Americans are putting money away into their retirement accounts? Check out this interesting article from Employee Benefits Advisors about some of the statics of Americans 401(k) savings by Ben Steverman.
(Bloomberg) – Americans aren’t saving enough for retirement.
True, this has been a refrain for longer than many can remember. But now some disturbing numbers show exactly how bad it’s gotten. Two-thirds of all Americans don’t contribute anything to a 401(k) or other retirement account available through their employer.
Millions aren’t saving on the job because they either don’t have access to a workplace retirement plan or they do but aren’t putting money in it. Many just can’t spare the cash, but a new analysis shows there are other reasons, too.
Until now, the exact size of the problem has been unclear. Surveys can be unreliable: Small businesses are difficult to assess, and many workers just don’t know what plan options they have, especially if employers aren’t making much effort to sign them up. Information on a 401(k) may be part of a stack of paper handed out on their first day, that they don’t read or understand, and ultimately set aside and never think about again.
Now, U.S. Census Bureau researchers have come up with estimates that rely on tax data, which should be more reliable than surveys. Their conclusion: Only about a third of workers are saving in a 401(k) or similar tax-deferred retirement plan. Also, the gap is far wider than expected between the number of employers offering retirement plans, and the number of workers saving in them.
Only 14% of employers offer plans
Census researchers Michael Gideon and Joshua Mitchell analyzed W-2 tax records from 2012 to identify 6.2 million unique employers and 155 million individual workers, who held 219 million distinct jobs. This data produced estimates starkly different from previous surveys.
For example, previous estimates suggested more than 40% of private-sector employers sponsored a retirement plan. Tax records uncovered a much bigger pool of small businesses, showing that, overall, just 14% of all employers offer a 401(k) or other defined contribution plan to their workers.
Bigger companies are the likeliest to offer 401(k) plans, and since they employ more people than small firms, skew the overall number of U.S. workers who have the option. Gideon and Mitchell estimate 79% of Americans work at places that sponsor a 401(k)-style plan. The good news is that’s more than 20 points higher than previous estimates. The bad news is that just 41% of workers at those employers are making contributions to such a plan—more than 20 points lower than previous estimates.
The combined result of those two numbers is that just 32% of American workers are saving anything in a workplace retirement account. Four out of five workers are employed by companies that offer a 401(k) or similar plan, but most workers aren’t using them—either because they’re not eligible or because they aren’t signing up.
Lawmakers have proposed a variety of ways to get more people to save. Several states are experimenting with strategies to get every worker signed up for a retirement account. But they face serious pushback from the Republican-controlled Congress and the financial industry.
The demise of the pension
Census researchers are still studying the tax data, cross-referencing it with other databases to get a fuller picture of how Americans are saving. For example, researchers are using retirement plan filing documents to get a better sense of how many workers are still covered by traditional pensions, also known as defined benefit plans. According to a Pew Charitable Trusts analysis of survey data released Feb. 15, only 10% of workers over age 22 have a traditional pension. Just 6% of millennials have a pension while 13% of baby boomers do.
Not surprisingly, the Census data suggest well-paid workers find it easier to save than the lowest-paid. But income isn’t the only factor. Eligibility is also a major issue for part-time workers and people who change jobs frequently. Companies often require employees to work for a certain amount of time before they can sign up for a 401(k), and employers aren’t required to allow part-time workers into a plan until they’ve worked 1,000 hours during the previous year.
Another problem made clear by the new report is that many workers simply don’t know their company 401(k) exists. Workers also might never get around to filling out the paperwork, or could be intimidated and confused by the need to make investment decisions. Companies can help solve all those problem by automatically signing up eligible workers, and requiring them to opt out if they don’t want to participate. Doing so has been proven to boost enrollment, but momentum has now stalled for automatic 401(k) features.
House moves to block auto-enrollment
California, Oregon, Illinois, Maryland, and Connecticut have started programs designed to encourage workers to save. Employers in those states would be required to either offer a retirement plan, or automatically enroll their workers in a state-sponsored individual retirement account. The states had the blessing of the Obama administration, which issued rules allowing states and even large cities to create portable retirement accounts if they want.
On Feb. 15, however, the U.S. House of Representatives voted to rescind those rules. Echoing the arguments of the financial industry, Republicans argued state auto-enrollment plans constitute unfair competition to the financial industry. If the Republican-controlled U.S. Senate and President Donald Trump also sign off, any state and city auto-IRA plans would be placed in jeopardy.
Whatever the outcome, any effort to get workers to save for retirement faces a daunting challenge: Can Americans spare the money? Student debt and auto loans are at record levels, according to Federal Reserve data released Feb. 16, and overall consumer debt is rising at the fastest pace in three years.
Retirement is an important goal, but many Americans seem to have more pressing financial concerns.
See the original article Here.
Source:
Steverman B. (2017 February 21). Two-thirds of americans aren't putting money in their 401(k) [Web blog post]. Retrieved from address https://www.employeebenefitadviser.com/news/two-thirds-of-americans-arent-putting-money-in-their-401-k?feed=00000152-1377-d1cc-a5fa-7fff0c920000
Employers adding financial well-being tools for preretirees
Take a peek at this interesting article from Benefits Pro, about the man tools and services employers are starting to offer to pre-retirees by Marlene Y. Satter,
As their employee base ages closer to retirement, employers are adding tools to help those older employees better prepare for the big day.
That’s according to Aon Hewitt’s “2017 Hot Topics in Retirement and Financial Wellbeing” survey, which found that employers are taking action to improve employee benefits and help workers plan for a secure financial footing, not just now but when they retire.
Not only are employers focusing on enhancing both accumulation and decumulation phases for defined contribution plan participants, they’re taking a range of steps to do so—from improved education to encouraging higher savings rates.
Just 15 percent of respondents are comfortable with the average savings rate in their plan; among the rest, 62 percent are very likely to act on increasing that savings level during 2017, whether by increasing defaults, changing contribution escalation provisions, or sending targeted communications to participants.
And only 10 percent of employers are satisfied with employees’ knowledge about how much constitutes an adequate amount of retirement savings, and nearly all dissatisfied employers (87 percent) are likely to take some action this year to help workers plan to reach retirement goals.
In addition, more employers are providing options for participants to convert their balances into retirement income. Currently just over half of employers (51 percent) allow individuals to receive automatic payments from the plan over an extended period of time.
They’re also derisking through various means, whether by adopting asset portfolios that match the characteristics of the plan’s liabilities (currently 40 percent of employers use this strategy, but the prevalence is expected to grow to more than 50 percent by year end), considering the purchase of annuities for at least some participants (28 percent are considering this action) or planning to offer a lump-sum window to terminated vested participants (32 percent are in this camp).
Why are employers suddenly so interested in how well employees are financially prepared for retirement?
According to Rob Austin, director of retirement research at Aon Hewitt, not only do employees not really understand how to convert a lump sum retirement plan balance into retirement income that they can live on, and employers are also worried that employees will mishandle that lump sum when the time comes and end up broke.
So some employers are tackling the issue by folding in more information about 401(k) plans with the annual enrollment process, in an effort to get employees to think more holistically about their benefits packages.
They're also encouraging them to consider increasing contributions to their retirement plan while they’re already enmeshed in other enrollments.
See the original article Here.
Source:
Satter M. (2017 February 13). Employers adding financial well-being tools for preretirees [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/02/13/employers-adding-financial-well-being-tools-for-pr?ref=hp-top-stories
How to encourage increased investment in financial well-being
Disappointed that your employees are not putting enough into your company's financial programs. Take a look at this article from Employee Benefits News for some helpful tips to help improve your employees' spending on financial well-being by Cort Olsen,
As few as 15% of employers say they are satisfied with their workers’ current savings rate in programs such as 401k(s), according to a new report from Aon Hewitt. In response, employers are increasingly focused on increasing savings rates and looking to expand financial well-being programs.
More workplace wellness programs are including a financial component, in which employers aim to help employees with financial issues from budgeting to paying down debt to saving for retirement.
Aon Hewitt surveyed more than 250 U.S. employers representing nearly 9 million workers to determine their priorities and likely changes when it comes to retirement benefits. According to the report, employers plan to emphasize retirement readiness, focusing on financial well-being and refining automation as they aim to raise 401(k) savings rates for 2017.
Emphasizing retirement readiness
Nearly all employers, 90%, are concerned with their employees’ level of understanding about how much they need to save to achieve an adequate retirement savings. Those employers who said they were not satisfied with investment levels in past years, 87%, say they plan to take action this year to help workers reach their retirement goals.
“Employers are making retirement readiness one of the important parts of their financial wellbeing strategy by offering tools and modelers to help workers understand, realistically, how much they’re likely to need in order to retire,” says Rob Austin, director of retirement research at Aon Hewitt. “Some of these tools take it a step further and provide education on what specific actions workers can take to help close the savings gap and can help workers understand that even small changes, such as increasing 401(k) contributions by just two percentage points, can impact their long-term savings outlook.”
Focusing on financial well-being
While financial wellness has been a growing trend among employers recently, 60% of employers say its importance has increased over the past two years. This year, 92% of employers are likely to focus on the financial well-being of workers in a way that extends beyond retirement such as help with managing student loan debt, day-to-day budgeting and even physical and emotional wellbeing.
Currently, 58% of employers have a tool available that covers at least one aspect of financial wellness, but by the end of 2017, that percentage is expected to reach 84%, according to the Aon Hewitt report.
“Financial wellbeing programs have moved from being something that few leading-edge companies were offering to a more mainstream strategy,” Austin says. “Employers realize that offering programs that address the overall wellbeing of their workers can solve for myriad challenges that impact people’s work lives and productivity, including their physical and emotional health, financial stressors and long-term retirement savings.”
The lessons learned from automatic enrollment are being utilized to increase savings rates. In a separate Aon Hewitt report, more than half of all employees under plans with automatic enrollment default had at or above the company match threshold. Employers are also adding contribution escalation features and enrolling workers who may not have been previously enrolled in the 401(k) plan.
“Employers realize that automatic 401(k) features can be very effective when it comes to increasing participation in the plan,” Austin says. “Now they are taking an automation 2.0 approach to make it easier for workers to save more and invest better.”
See the original article Here.
Source:
Olsen C. (2017 February 06). How to encourage increased investment in financial well-being [Web blog post]. Retrieved from address https://www.benefitnews.com/news/how-to-encourage-increased-investment-in-financial-well-being?brief=00000152-14a7-d1cc-a5fa-7cffccf000
Only 1 in 3 employees actually understands how their 401(k) works
Do all of your employees understand how their 401(k) works? If not check out this article from HR Morning on the statistics of about 1 in 3 employees that do not understand their 401 (k) by Jared Bilski,
When it comes to common financial vehicles like 401(k) plans, term life insurance, Roth IRAs and 529 college savings plans, most workers could use some education on the finer points.
In fact, according to a recent study by The Guardian Life Insurance Company of American, one-third or less of employees said they had a solid understanding of the most common financial products.
Problem areas
Here is the specific breakdown from the Guardian Life study on the percentage of worker that said they have a solid understanding of various financial products:
- 401(k)s and other workplace retirement plans (just 32% of workers said they had a solid understanding)
- IRAs apart from Roth IRAs (27%)
- Individual stocks and bonds (26%)
- Mutual funds (25%)
- Pensions (25%)
- Roth IRAs (24%)
- Term life insurance (23%)
- Separately managed accounts (23%)
- Disability insurance (23%)
- 529 college savings plans (23%)
- Whole life insurance (22%)
- Business insurance, such as key person insurance or buy/sell agreements (20%)
- Annuities (19%)
- Universal life insurance (19%), and
- Variable universal life insurance (18%).
Education vs. no education
One of the best ways to help workers garner a better understanding of their finances — and the financial products available to them — is through one-on-one education.
Consider this example:
The Principal Group compared the saving habits and financial acumen of workers who attended a one-on-one session the organization offered one year to those who didn’t.
What it found: Contribution rates for those who attended the session were 9% higher than those who didn’t. Also, 19% of the workers who received education opted to automatically bump up their retirement plan increases with pay increases, compared to just 2% of other employees.
Also, 92% of the employees who were enrolled in Principal’s education program agreed to take a number of positive financial steps, and 80% of those workers followed through on those steps.
See the original article Here.
Source:
Bilski J. (2017 January 27). Only 1 in 3 employees actually understands how their 401(k) works [Web blog post]. Retrieved from address https://www.hrmorning.com/only-1-in-3-employees-actually-understands-how-their-401k-works/
3 Financial Risks That Retirees Underestimate
Are you worried about the risks associated with retirement? If so check out this article from Kiplinger about some of the risks associated with retirement that retirees underestimate by Christopher Scalese
When you think of risk in retirement, what comes to mind? For many, the various risks associated with the stock market may be the first. From asset allocation risk (avoiding keeping all of your eggs in one basket) to sequence-of-return risk (the risk of taking out income when the market is down), these factors become increasingly important once your paychecks stop and you begin drawing from your investments for retirement income.
However, these are only the tip of the iceberg when it comes to key risks that should be considered for retirement planning in today's economy. Here are three areas I commonly see retirees and pre-retirees forgetting to consider:
1. Portfolio Failure Risk
How long can you live off of income from your investments? Is it likely that your investments can provide an income stream you won't outlive? There are many theories, such as the ever-popular 4% rule, which suggests that, if you maintain a portfolio consisting of 60% bonds and 40% equities, you can take 4% of your total portfolio each year. However, studies in recent years have shown this method to have about a 50% failure rate based on today's low-interest rates and market volatility.
Another withdrawal method is guessing how long you'll live and dividing your savings by 20 to 30 years—but what happens if you live 31 years?
If you do not have a written income plan for how to strategically withdraw from your accounts over the duration of your retirement, this may be a significant risk to consider.
2. Unexpected Financial Responsibility Risk
Life is full of surprises, and retirement is no different. Today's retirees are known as the "sandwich generation" with financial pressures coming from all sides—often having to provide for grown children and aging parents at the same time.
Additionally, there are difficult but significant financial planning considerations for the future loss of a spouse. You can expect to lose a Social Security payment and potentially see changes to a pension. Simultaneously, tax brackets will shrink when going from married to single, taking a larger piece of your already-reduced income.
Having a proactive, flexible financial strategy can be essential in helping you adapt to your many changing needs throughout the course of your retirement.
3. Health Care Risk
Beyond the considerations for inflation on daily purchasing power in retirement, rising costs of health care, particularly as Americans continue living longer, require explicit planning to avoid a physically disabling event from becoming a financial concern. From Medigap options to long-term care and hybrid insurance policies, considering insurance coverage for perhaps one of the most significant expenses in retirement may be a pivotal point in your retirement planning.
While these obstacles may seem daunting, identifying and understanding the concerns unique to your retirement goals should be the first step to help overcome them.
See the original article Here.
Source:
Scalese C. (2017 January). 3 financial risks that retirees underestimate [Web blog post]. Retrieved from address https://www.kiplinger.com/article/retirement/T037-C032-S014-3-financial-risks-that-retirees-underestimate.html
HSAs could play bigger role in retirement planning
Did you know that ACA repeal could have and effect on health savings plans (HRA)? Read this interesting article from Benefits Pro about how the repeal of the ACA might affect your HRAs by Marlene Y. Satter
With the repeal of the Affordable Care Act looming, one surprising factor in paying for health care could see its star rise higher on the horizon—the retirement planning horizon, that is. That’s the Health Savings Account—and it’s likely to become more prominent depending on what replaces the ACA.
HSAs occupy a larger role in some of the proposed replacements to the ACA put forth by Republican legislators, and with that greater exposure comes a greater likelihood that more people will rely on them more heavily to get them through other changes.
For one thing, they’ll need to boost their savings in HSAs just to pay the higher deductibles and uncovered expenses that are likely to accompany the ACA repeal.
But for another—and here’s where it gets interesting—they’ll probably become a larger part of retirement planning, since they provide a number of benefits already that could help boost retirement savings.
Contributions are already deductible from gross income, but under at least one of the proposals to replace the ACA, contributions could come with refundable tax credits—a nice perk.
Another proposal would allow HSA funds to pay for premiums on proposed new state health exchanges without a tax penalty for doing so—also beneficial. And a third would expand eligibility to have HSAs, which would be helpful.
But whether these and other possible enhancements to HSAs come to pass, there are already plenty of reasons to consider bolstering HSA savings for retirement. As workers try to navigate their way through the uncertainty that lies ahead, they’ll probably rely even more on the features these plans already offer—such as the ability to leave funds in the account (if not needed for higher medical expenses) to roll over from year to year and to grow for the future, and the fact that interest on HSA money is tax free.
But possibly the biggest benefit to an HSA for retirement is the fact that funds invested in one grow tax free as well. If you can leave the money there long enough, you can grow a sizeable nest egg against potential future health expenses or even the purchase of a long-term care policy. And, at age 65, you’re no longer penalized if you withdraw funds for nonapproved medical expenses.
And if you don’t use the money for medical expenses in retirement, but are past 65, you can use it for living expenses to supplement your 401(k). In that case, you’ll have to pay taxes on it, but there’s no penalty—it just works much like a tax-deferred situation from a regular retirement account.
See the original article Here.
Source:
Satter M. (2017 January 16). HSAs could play bigger role in retirement planning [Web blog post]. Retrieved from address https://www.benefitspro.com/2017/01/16/hsas-could-play-bigger-role-in-retirement-planning?ref=hp-news
DOL and IRS want a closer look at your retirement plan
Are you worried that your company's retirement plan is not up to government standards? If so take a look at this article from HR Morning about what the DOL and IRS are looking for in retirement plans by Jared Bilski
Two of the most-feared government agencies for employers — the DOL and IRS — have decided there’s a real problem with the way retirement plans are being run, and they’re ramping up their audits to find out why that is.
In response to the many mistakes the agencies are seeing from retirement plan sponsors, the IRS and DOL will be increasing the frequency of their audits.
What does that mean for you? According to experts, plan sponsors can expect the feds to dig deep into the minute operations of plans. That means the unfortunate employers who find themselves in the midst of an audit can expect to be asked for heaps of plan info.
Linda Canafax, a senior retirement consultant with Willis Towers Watson, put it like this:
“The DOL and IRS are truly diving deep into the operations of the plans. We have seen a deeper dive into the operations of plans, particularly with data. Plans may be asked for a full census file on the transactions for each participant. Expect the DOL and IRS to do a lot of data mining.”
What to watch for
Ultimately, it’s impossible to completely prevent an audit. But employers can — and should — do certain things to safeguard themselves in the event the feds come knocking.
First, a self-audit is always a good idea. It’s always better for you to discover any problems before the feds do. Next, you’ll want to be on the lookout for the types of errors that can lead the feds to your workplace in the first place.
The most common errors the IRS and the DOL are looking for:
- Untimely remittance of employee deferrals (i.e., contributions)
- Incorrect compensation definition (plan documents dictate which types of comp employees are eligible to contribute from)
- Not following the plan’s own directives, and
- Not having a good long-term system (20-30 years out) for tracking and paying benefits to vested participants.
See the original article Here.
Source:
Bilski J. (2017 January 6). DOL and IRS want a closer look at your retirement plan[Web blog post]. Retrieved from address https://www.hrmorning.com/dol-and-irs-want-to-take-a-closer-look-at-your-retirement-plan/