November 2008: Saving at Work
Ken McDonnell is the program director for the American Savings Education Council, a financial education program that helps all individuals make saving and retirement planning a priority. Ken has been with ASEC for 17 years.
Many Americans work toward a comfortable, secure retirement by saving through workplace programs offered as part of their employee benefits plan.
But, according to a 2008 survey, a quarter of employees reported they were confused and frustrated by their benefit choices. And on top of that, the recent spate of bad economic news has many people concerned about investing their retirement savings in a tumultuous market.
This email provides tools for better understanding your benefit choices and protecting your retirement savings during tough economic times, and explains how to maximize your savings through work.
The Employee Benefit Simplifier Tool can help you understand your benefit choices so that you make the selections that are right for you. When you provide information about your age, marital status, income, and expenses, the tool will suggest benefit choices that might be best for you.
Keep in mind that your benefit choices are not set in stone. During your working life, you may experience many changes—marriage, children, job change—you may want to revisit your employee benefit selections to make sure those choices are best for you.
Workplace Savings Programs
A 401(k) plan is a common type of retirement savings plan that allows you to make pre-tax (and sometimes after-tax) contributions to a savings account. Two other plan types, 403(b)s and 457s, work in a similar way, and are geared toward nonprofit and public-sector workers.
You may receive a tax benefit by enrolling in these savings plan because before-tax contributions are taken out of your paycheck before some taxes are calculated—this lowers the amount you owe in current federal income taxes while helping you save money for your future.
Most employers require that employees opt-in to 401(k) programs, but some employers automatically enroll new employees. The automatic enrollment or ‘opt-out’ method has been found to be very effective in increasing savings rates. Make sure to check with your human resources representative at work to investigate the full range of savings options available to you.
Many employers offer a partial “match” to your monthly 401(k) contribution as an incentive to help their workers save. We recommend contributing enough to get the entire matching contribution from their employer. This online Payroll Deduction Calculator can help you determine a contribution amount.
Many account-holders are rightfully concerned about the declining value of their retirement savings.
That’s why we advise savers who make their own investment choices to carefully consider factors such as your current age, the age at which you plan to retire, and your tolerance for investment risk. Younger employees, who are far from retiring, may take on riskier investments, while those who are close to retirement may consider having a larger percentage of their portfolio in more stable assets.
The FINRA Investor Education Foundation has Web tool that will help you develop a Strategy for Investing.
By taking advantage of the resources and advice offered here, you’ll be on your way to making the most of the savings programs offered at your workplace and ensuring a comfortable retirement.