Millions of Americans are missing out on a billions of dollars in free money. How, you ask? They are missing out on free money by not getting the full employer matching contribution for their 401(k) accounts. According to a new report by independent investment advisory firm Financial Engines, workers left an average of $1,336 in matching contributions on the table each year, adding up to an estimated $24 billion in lost free money. The report compiled information from the savings records of 4.4 million retirement plan participants at 553 companies.
The report found that nearly 8 in 10 eligible employees are taking advantage of defined contribution plans like 401(k) plans, but a quarter of employees are not contributing enough to their 401(k) plans to get the full company match. Most employers offer some type of employer-matching contribution for 401(k) accounts and include their contribution as part of the compensation package for their employees. If the employee does not contribute enough to get the full matching contribution, it is like handing a portion of their compensation back to their employer.
The matching contribution is one of the best benefits of employer-sponsored retirement savings plans because it gives the employee an instant return on their investment. In many cases, the employer will match a contribution to the retirement account up to 6 percent of the employee’s base salary. Different employers have different contribution amounts, so each employee should review their benefits package completely to ensure that they know the maximum amount the company will contribute to their account based on the amount they have diverted from their paycheck into the account.
Unclaimed employer matching contributions has been an issue since the companies started offering the plans years ago. Part of the problem is that more companies have instituted the automatic enrollment of employees into the retirement plans to boost participation, but the default contribution amount is not high enough for the employees to get the full amount of the matching funds. While a company may offer up to 6 percent of salary in matching funds, the default contribution is often about 2 percent of the employee’s salary. If the employee does not raise their contribution amount, they will be missing out on a lot of free money.
Retirement planning is already difficult enough, but the unknown factors that will affect your retirement planning in the future make it even more difficult to determine how much you should be saving for retirement. Some people are overly optimistic about the effects that these factors will have on their plan for retirement, causing many to save less than they should and putting them in a precarious financial position during their retirement years. Other people focus on these factors too much, sacrificing their current lifestyle to save as much as they can for retirement. Finding the right balance between the two extremes is necessary for securing both your lifestyle today and your lifestyle during retirement. Here are some of the factors you should keep in mind when retirement planning.
The Effects Of Inflation
If you are not planning to retire for at least another decade, the inflation that occurs during that time period will have a significant effect on the value of your retirement savings after you retire. The longer you are in retirement, the greater the impact inflation is likely to have on the purchasing power of your money and the quality of your lifestyle. The effects of inflation must be taken into account when retirement planning if you hope to save enough money to live comfortably during your retirement years.
The Effects Of Market Volatility
The stock market has become substantially more volatile over the past decade, making it harder for investors doing their retirement planning to determine the best investments to hold long term in their retirement account portfolios. Timing and luck have become just as important as choosing sound investments with a limited amount of risk associated with them. A market downturn when you are less than five years away from retiring will have a considerable impact on your investment returns that could be difficult to recover from within the amount of time left before you retire. Hedge your bets by diversifying your portfolio and rebalance it to get more conservative as you approach your target retirement date.
The Effects Of Living Longer
With lifespans progressively getting longer, more people are at risk of outliving their savings during retirement. Today, the average lifespan of people in the United States is about 78 years old, but some people live considerably longer, living as much as 30 years after retirement. Today’s retirees need to ensure that their retirement income can last for that long because not properly accounting for longevity risk in retirement planning can dramatically impact their quality of life in retirement or even ending their retirement as they are forced to go back to work to make ends meet.
As a parent or caregiver to a child, it is important to arm them with enough skills and information to be able to battle through life in a financially savvy manner. Gone are the days when you can bumble through, expecting a combination of fate and overdraft facilities to keep you afloat. In order to play the game successfully, it is important to have some knowledge of how to run your finances safely and how to protect your loved ones from financial disaster.
Pass on these important life lessons to your children and give them the means to have a financially stable future.
Budgeting is a skill that is imperative for children to understand. Whether it is budgeting a weekly amount of pocket money or budgeting their income from their first job, there is no excuse not to start teaching this vital skill at an early age. It is simple when the kids are young.
Start by playing shopping with them. Set up a supermarket in your living room and give them a budget to spend in your make-believe shop. As the children become older, their disposable income naturally increases and, as a financially wise parent, one of the financial facts of life (e.g. budgeting) becomes one of the best things you would have taught your offspring.
Prepare for the Future
Once the whole budgeting life lesson is underway, then another grown-up responsibility toward your children becomes apparent. Finding a life insurance policy that works for your your family is a part of looking after your family, especially if you want to offer them some protection against any possible future financial calamity.
Start by comparing different policies and thinking about what type of life insurance is the right one for you and your family. Be aware that any debts you have could be passed on to your nearest and dearest in the case of your unexpected demise. This might make you think about having a lump sum available in those circumstances, or, perhaps you want to focus on your mortgage being paid off in order to give your family some security. Not only is life insurance important for your family but teaching your kids about life insurance will be a very important lesson for them to learn. Teach them about the responsibility of having a family and how to protect them for the future. It’s a sobering thought, but if your children grow up with savvy financial knowledge, then they will minimise the chances of experiencing financial catastrophes as they make their way through life.
Another great way to get your kids thinking about money matters is to start them off with a system for saving. There are many options, depending on the age of the child and the amount that they would like to save. For instance, a very young child could be taught the positive aspects of savings by using a physical cue. Try a piggy bank or a clear jam jar, and when they have enough pennies in there, perhaps you can take your child to the ice cream parlour to take advantage of some of those savings.
The other thing to do is to break down finances into different outgoing compartments. This is a particularly useful lesson for the teenager who suddenly has a weekend job and gets their first taste of cash in the bank. By pointing out the need to split money into different directions to cover costs could save your angst-ridden teen from financial breakdown. By encouraging them to open several accounts, each one representing a different product, savings goal or direct debit, then the lesson of managing money becomes a little easier for the teenager who has just stepped into the world of the money.
Teaching children to save is not a big problem. They can see the pounds piling up in the piggy bank, and that is a great thing for motivation. But, how will that translate for the gap year student, hoping to see the world on a shoestring? Or, how will that help the teenager who is desperate to own her first car? This is where good parent points can be earned by agreeing to match the amount saved by them, thus decreasing the saving time by 50% and painting the parent as an all-around “good egg”.
So, by teaching children the benefits of saving money whilst they are still young, they will be able to use the lessons learned when they are older and have more revenue to manage.
By planting these financial seeds in their heads at a young age, you are certainly helping your child cope with the financial demands in life. It really all points to their future as a responsible adult—how to create finances to be used in the future and how to protect their own eventual family in the future.
Many people know that they need life insurance to protect their family in the event that the unthinkable happens but refrain from searching for the right insurance policy because they believe that finding affordable life insurance is an unattainable dream. There are many reasons why they come to this conclusion. They may believe that they are too old to be able to get a life insurance policy at an affordable price or they may have a medical condition that they believe disqualifies them for all but the most expensive life insurance policies. Fortunately, there are a considerable number of carriers offering affordable life insurance to people in these very situations. Here are some tips that will help you find the right affordable life insurance policy for you.
Compare Life Insurance Policies
One of the best ways to obtain affordable life insurance is to compare the insurance offerings of several different insurance companies online to see which ones are offering the best coverage for the best price. Different insurers can have vastly different premium prices for similar policies for the same person. Websites like InsureChance.com allow you to compare insurance policies from a number of leading insurance companies on a single site to easily see the details of each one.
Choose Coverage Carefully
Many people make the mistake of choosing more life insurance coverage than they need, paying more over time than they would ultimately gain in benefits for their family. If you are younger and still supporting growing children, you will need more coverage than if you are retired and drawing social security. The goal of having life insurance is not to make sure your family is set for life if you should happen to pass away, it is to ensure that your family does not have to suffer undue hardship immediately after your death due to financial issues. Choose your life insurance coverage carefully to ensure you are not paying more than you should for coverage you do not need.
Review The Conditions Of The Policy
Many life insurance policies have conditions attached to them that can affect the payout of the policy by a considerable amount. These conditions must been spelled out in the paperwork for the life insurance policy so that the person purchasing the policy knows exactly what they are purchasing, but some people fail to review this information at all, leading to unpleasant surprises when the family must make a claim. Before signing any of the paperwork associated with a life insurance policy, make sure you review the conditions of the policy to ensure that you know what you are agreeing to.