By Edward “Ed” V. O’Neal, Senior Vice President and Manager, Retirement PlansPrint This Post
Most people have a mental picture of what their retirement years will look like. For some it might include exciting travel destinations or daily golfing excursions, and for others it might include volunteering 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 that participation in a 401(k) can be a great tool for helping fulfill those retirement goals. Employees fortunate enough to have access to a work-based retirement plan should take full advantage of it.
The month of September is most often associated with the celebration of Labor Day. But over the past several decades, September has also included the celebration of National 401(k) Day – scheduled for September 10 this year – which has a focus on retirement savings education. The Profit Sharing Council of America (PSCA) created National 401(k) Day in 1996 and intentionally chose the date so that employees could “start the week with Labor Day and end the week with Retirement.” In addition to the theme of retirement savings education, PSCA also uses the holiday to encourage employers to educate their employees about any retirement plan they may offer, along with general retirement planning and retirement readiness topics.
Unfortunately, surveys show that only 70% of Americans feel financially prepared for retirement. And while 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 key design changes to their retirement programs to help improve employee chances to meet 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 (many plans may still offer a hardship withdrawal provision)
Additionally, there are some best practices that employees can utilize to help improve their chances for retirement readiness, including:
- 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 taking advantage of any employer matching contributions.
- Select personally compatible investments – retirement plans often allow participants to select from a menu of investments that create an investment portfolio that aligns with their personal risk and tolerance levels.
- Avoid early withdrawals – premature withdrawals from a retirement plan can result in expensive fees and tax penalties for a participant.
- 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. However, 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!
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.