4 Ways To Boost 401(k) Savings
By: John Wasik - January 02, 2019
All great retirement plans share a few features. They are not always apparent to most employees, but they can make a huge difference in saving enough for retirement.
Hands down, the best plans are still old-style, defined benefit pensions. Your employer contributes, manages the plan and you receive a guaranteed benefit if you stay at the company long enough and your company doesn't go bankrupt.
Of course, defined-benefit plans have largely gone the way of fax machines. They are mostly offered to public agency employees and older companies. But they've clearly been on their way out for the past 40 years or so.
I can't honestly say that 401(k)-style plans, including 403(b)s, 457s and self-employment IRAs are the next best thing. You have to fund them, employers don't have to offer or contribute to them, and they can be expensive.
Yet even if you're offered a mediocre 401(k), you can ask your employer to improve it. Here's what the best plans have in common, according to a recent study by The Fiduciary Matters Blog:
-- Only a few investment options. More is not better. You don't need 20 funds to offer diversification across global markets. You can do that with a handful of broad-based index or "target-date" portfolios.
-- High Contribution Rates. The math is pretty simple: The more you contribute, the bigger your nest egg, thanks to compounding. Shoot for a 15% total contribution rate. Here are some things Fiduciary Matters suggests that employers can do:
"Consider using tools such as higher default rates, opt-out automatic escalation in 2% increments, and automatic catch-up contributions to put participants on the path of successful savings behavior."
-- Keeping Money in the Plan. Not only do loans and early withdrawals clobber overall savings, they can generate income tax hits. You also may want to keep your money in the plan after retirement to take advantage of professional management.
"Plans may also wish to offer features that are more attractive to retirees such as lifetime income options, access to financial advice and the ability for terminated employees to take partial withdrawals from the plan and repay loans."
-- Focusing on Financial Wellness. This is the "big picture" of personal finance. It takes into account all of your financial life from credit problems to retirement income. If you have debt issues, it's awfully hard to save.
Employers are increasingly offering financial wellness programs, so take advantage of them. Combine those features with retirement savings and you'll be on your way.
Article Source: Forbes.com
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