401k Plans Getting Better: Are They Reason Enough to Work Longer?
We are supposedly in the midst of the “Great Resignation.” Record numbers of Americans are quitting their jobs. Some are retiring. Most are seeking a better gig. And, employers are responding with higher salaries and better benefits. Retirement savings plans like 401ks are getting beefed up as employers scramble to hire and retain people.
Explore what’s new in company benefits. Would a better retirement savings benefit or other employment perk tempt you to delay retirement and work longer?
The pandemic seems to have increased awareness of the importance of retirement savings.
Sixty-eight percent of people say they now prioritize building up their retirement savings more than they did before the pandemic.
A 401k plan is a tax-advantaged retirement savings vehicle offered by employers. Typically employees can opt to have money withheld from their paycheck to be invested in the 401k. Employers can also match employee contributions, essentially offering the worker additional compensation beyond their salary.
With retirement savings becoming more important to employees, employers seem to be responding. This year, 34% of the survey respondents say that their employer has recently introduced a 401k plan.
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Companies Are Improving Their 401k Plans
The Wall Street Journal reports that many companies are beefing up their 401k offerings in 2022:
- 16% of large and midsize companies plan to increase matching or revive suspended matches in 2022
- Another 8% say those options are under consideration.
- The combined total is up from 12% last year.
Analysis from 2019 found that the average employer match is 4.3%. However, companies have many different formulas for determining their match.
The most common match, used in 2019 by 71% of companies, was 50 cents on the dollar up to 6% of your pay. This means that if you are earning $100,000, the employer will contribute 50 cents for every dollar you save up to $6,000. (The employer will have contributed $3,000.)
Some employers (21%) match dollar for dollar. So, if you save $1, the employer will contribute $1. However, in this formula, the maximum contribution the employer will make is lower, typically around 3%. (So, the total contribution is still only $3,000 on a $100,000 salary.)
There are also differences in when employer match kicks in. Sixty-eight percent of employers allow you to participate in the 401k with the first paycheck. However, for employers that provide matching contributions, only 56% give the match in the first month and 24% require a year of service before the matching kicks in.
A study from Betterment Business found that access to a high-quality 401k or other retirement savings plan and a matching program are the most important financial wellness benefits a company can offer employees.
And, the survey also found that 74% of employees could be enticed to jump ship to a different job with a better 401k plan.
401k matching is when the employer contributes an amount that matches what the employee saves into their 401k.
So, if you are investing 3% of your $100,000 salary into a 401k, the employer is also investing $3,000 into the tax advantaged account. So, your savings are doubled and your total compensation from the company, including the 401k benefit, is $103,000.
You probably think of the dollar value of your compensation as your salary. However, according to the Bureau of Labor Statistics, your paycheck typically only represents about 70% of the monetary value you get from your employer.
Benefits like 401k matching, health insurance, and other perks are another 30%.
Think about this if you are looking for a new job and be sure to compare total compensation, including benefits, between different offers you might receive.
In an effort to woo employees in this tight labor market, employers are beefing up real compensation like 401k matching as well as other new monetary and other kinds of benefits. Benefits you might see more of now include:
Paid time off and flexible work schedules: Paid time off (PTO) is time your company will pay you for, even if you are not working. Companies are increasing the amount of PTO they offer, acknowledging that people have multiple demands and are likely to do better work if they aren’t stressed out by everything else they need to do.
Wellness benefits: Gym memberships, onsite Covid shots, and meditation apps are all examples of perks that employers are offering employees in an effort to keep them healthy, happy, and working.
Financial wellness: Tools like NewRetirement’s PlannerPlus are being offered to employees to help people reduce financial stress and make better financial decisions.
Work from home: Many employers are finding that offering at least the option to work from home is a non-negotiable benefit. A FlexJobs survey found that 96% of workers want to continue to be remote in some capacity, with 65% desiring to stay remote full time.
Mental health resources: One study found that 32% of employers have increased resources for mental health benefits since the pandemic began.
Childcare: The pandemic was particularly hard on working parents. Employers are responding with childcare packages for employees.
There is no one-size-fits-all approach to figuring out how much you need to save for retirement.
The number is determined by a big variety of factors including your future retirement spending, rate of return on investments, inflation, how long you’ll live, retirement income sources, and much more.
So, how do you figure out how much to save? The best way is to build a personalized retirement plan. Forbes Magazine called the NewRetirement Planner “A new approach to retirement planning.” This comprehensive platform enables you to get organized, see where you stand, understand what you need, and discover ways to do better.
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For people who want clarity about their choices today and their financial security tomorrow, NewRetirement is a financial planning platform that gives people the ability to discover, design, and manage personalized paths to a secure future.
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