By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement Plans
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Most people dream of a certain lifestyle during their retirement years. For some it might include exciting travel destinations, while for others it might entail volunteering for their favorite charity or starting a long-overdue business venture. National 401(k) Day, celebrated every year on the Friday after Labor Day, serves as a great reminder to check on our retirement nest egg and retirement goals.
Although the month of September is typically associated with the celebration of Labor Day, over the past several decades this month has also included the celebration of National 401(k) Day. Scheduled for September 9 this year, National 401(k) Day was created by the Profit Sharing Council of America (PSCA) in 1996 and intentionally planned the date so that employees could “start the week with Labor Day and end the week with Retirement.” This “holiday” generally promotes a range of retirement themes including retirement savings education, encouraging employers to sponsor retirement plans for their employees, educating employees about the benefits of participating in an employer sponsored retirement plan and general retirement planning and retirement readiness topics.
Despite these efforts, surveys show that only 70% of Americans feel financially prepared for retirement. And although 79% of Americans work for employers offering a 401(k) plan, only 41% take advantage of the benefit.* To help combat and improve these statistics, an increasing number of employers are making design changes to their retirement programs to help improve employee chances of increasing their retirement nest eggs and meeting their retirement goals, such as:
- Automatic enrollment of new employees into the 401(k) plan
- Establishing a default salary deferral rate for new employees
- Establishing an automatic escalation provision to annually increase employee salary deferrals
- Establishing a default investment selection for new employees in a diversified investment option
- Eliminating or restricting plan loans to limit employee ability to access assets before retirement or separation from service.
Additionally, here are some best practices that employees can utilize to help improve their chances for retirement readiness:
- Take advantage of employer sponsored retirement plans – If your employer provides an opportunity to participate in a retirement plan (i.e., a 401(k) plan), this can be an effective, tax-advantaged tool in helping to reach your retirement goals. If you’re fortunate enough to have access to an employer sponsored retirement plan, take advantage of it.
- Start contributions early – It’s never too late to start saving for retirement, but the key to maximizing retirement savings is by starting early.
- Take advantage of matching contributions – Many 401(k) plans are designed to include a matching feature. If available, participants can supercharge their retirement savings by contributing enough to maximize any employer matching contributions.
- Select personally compatible investments – Retirement plans often allow participants to select from a menu of pre-selected investments. Participants then can create an investment portfolio that aligns with their personal risk and tolerance levels no matter how many years that have until retirement.
- Avoid early withdrawals – Premature withdrawals from a retirement plan can be expensive. Not only will they be taxed as income, they can also result in fees and tax penalties for a participant, not to mention the loss of future tax deferral.
- Check-in periodically – Although retirement plan assets are generally considered long-term investments, remember to monitor these investments as you go and make adjustments as needed.
National 401(k) Day reminds us that there is still work to do in improving employee confidence in meeting their retirement goals and establishing a secure retirement. Retirement planning can be complex, and it seems that retirement regulations change as frequently as the market, which can cause undue stress and frustration. Taking a measured approach to retirement planning and incorporating key best practices can lead to better financial outcomes and improve your chances of a secure retirement. Happy National 401(k) Day!
*SpiritoftheHolidays.org (National 401k day)
Benjamin F. Edwards does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.