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Audio: Retirement Resolutions
Tweet Share on Facebook December 30, 2008 CommentAs we finish up the last of the holiday cookies, it is time to reform our bad habits for the New Year. Many resolutions this year will undoubtedly involve getting personal finances in order. Over the weekend, I spoke with WTOP in Washington about New Year's resolutions for retirement. Here is a look at some ideas to get your 401(k) and IRA balances back up to where they were a year ago.
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Retirement Investments Are the Top Employee Concern
Tweet Share on Facebook December 24, 2008 Comment (1)Employees could be kept awake at night by any number of legitimate fears: job loss, declining home values, and ever increasing health costs. But retirement account losses topped workers' current list of significant woes.
A recent Mercer survey of 1,028 human resource and finance professionals found that 54 percent of respondents said that employees expressed a significant level of concern about the impact of economic turmoil on their retirement investments. Considerably fewer respondents said workers were worried about the health of the company (37 percent) or anxious about job security (34 percent).
The survey also found that 17 percent the human resources professionals surveyed say their company is considering reducing the level of employer contributions to 401(k) or similar retirement accounts.
As for traditional pensions, companies are considering changing investment strategy (46 percent), changing funding policies (31 percent), and cutting back or stopping accruals (24 percent).
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Starbucks May Cut 401(k) Match
Tweet Share on Facebook December 24, 2008 Comment (2)Current Starbucks Corp. employees get a gradually increasing 401(k) match, depending on how long they have been with the company. Matches begin at 25 cents for each dollar contributed up to the first 4 percent of pay for workers with less than 36 months on the job and gradually perk up until they max out at $1.50 for each dollar saved after 120 months or more of service. The coffee company plans to spend about $15 million on 401(k) matches this year.
But, like most 401(k) plans, Starbucks reserves the right to change, modify, or terminate these benefits at any time, with or without notice. And 2009 may be the year that the coffee company does so. The Seattle-based giant told employees the company won't guarantee that it will make a company match to their “future roast” 401(k) accounts next year. And if they do provide a matching contribution, it may be at a different rate.
The Wall Street Journal obtained and confirmed a letter Starbucks sent to employees last week:
“The coffee giant said it will switch to a ‘fully discretionary match’ from a ‘fixed employer match’ starting Jan. 1 for employees ‘future roast’ retirement savings plans. That means the company can decide whether or not to make matching contributions to participants in the retirement plan for future years.”
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Unisys Corporation Cuts 1,300 Jobs, Suspends 401(k) Match
Tweet Share on Facebook December 24, 2008 Comment (4)Unisys Corporation is the latest company to ax jobs and retirement benefits. The company announced Monday that it will eliminate approximately 1,300 positions worldwide and consolidate facilities.
The information-technology services firm will also suspend company matching contributions to the U.S. 401(k) plan. Cutting the match will save the company about $50 million annually, the company said.
The Blue Bell, Pa.-based company plans to forgo 2009 salary increases for most employees as well. All the cost cutting measures led by new Unisys Chairman and CEO Ed Coleman are expected to save more than $225 million.
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President Bush Signs Pension Relief Bill
Tweet Share on Facebook December 23, 2008 Comment (4)President Bush signed legislation today that offers a measure of tax relief to retirees next year. The Worker, Retiree, and Employer Recovery Act was also passed by both houses of Congress earlier this month.
The bill allows retirees to avoid making withdrawals from depleted 401(k)s, IRAs, and 403(b)s in 2009. But seniors over age 70 ½ need to take withdrawals this year by December 31 or face an excise tax of 50 percent of the amount that should have been withdrawn plus income tax. The Treasury Department and Internal Revenue Service also considered suspending the penalty for 2008, but ultimately decided against it.
Businesses will also get temporary relief from their pension funding requirements under the Pension Protection Act. “We did have some concerns with this bill because we think it will increase the cost of near-term claims on the Pension Benefit Guaranty Corporation -- the PBGC -- and could also result in some benefits lost to workers over the long term,” says White House spokesperson Tony Fratto. “Our concerns with the legislation remain, but we do believe that in this current economic environment and current economic circumstances, that the benefits of the legislation outweighed our objections.”
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New Year's Resolutions for Retirement
Tweet Share on Facebook December 23, 2008 Comment (1)Buck up: Your New Year's resolutions are going to require more sacrifice than usual this year. Layoffs, benefit cuts, and disappearing 401(k) balances have lashed workers in 2008. Yet everyone still has to provide for retirement. Here are some ways you can resolve to get your retirement plan back on track in 2009. Please share your retirement tips below.
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Delay Retirement
Tweet Share on Facebook December 23, 2008 Comment (1)The best way to recoup market losses is to work longer. That gives your retirement accounts time to recover before you begin to draw them down. "Even before the financial crisis, people should have been considering working longer because they are going to live longer," says Alicia Munnell, director of the Center for Retirement Research at Boston College and coauthor of Working Longer: The Solution to the Retirement Income Challenge. "After the financial crisis, you need to work three to five years longer."
A recent AARP survey found that 65 percent of workers ages 45 and over are considering delaying retirement and working longer unless the economy improves significantly. Continuing to work allows you to tuck more cash into your accounts, lets your account accrue returns and work its way up to where it was a year ago, and shortens the length of the retirement you will have to finance. How long will you have to work to recoup market losses? For employees who have worked for 20 to 29 years and leave their 401(k) invested in a mix of stocks and bonds, it will take, on average, one year, nine months of work to resuscitate their 401(k)'s, the Employee Benefit Research Institute calculates. If you pull your nest egg out of stocks, that bumps up the recovery time to two years, one month in the working world, EBRI says.
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Put Off Claiming Social Security
Tweet Share on Facebook December 23, 2008 Comment (1)You can sign up for Social Security beginning at 62. But waiting until 70 to claim your due will produce bigger payouts if you're in good health and expect to live a long time. Your Social Security benefit increases by 7 percent until your full retirement age and by 8 percent afterwards, says Laurence Kotlikoff, a Boston University economics professor and coauthor of Spend 'Til the End: The Revolutionary Guide to Raising Your Living Standard—Today and When You Retire. That's a far better return than most people are getting in the stock market right now. "You can potentially spend more now because you will have this higher income coming in when you are older," Kotlikoff says.
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Get Your 401(k) Match
Tweet Share on Facebook December 23, 2008 CommentThe most common 401(k) match is 50 cents per dollar up to the first 6 percent of pay. If you make $50,000 a year and manage to tuck away $3,000, you can get an extra $1,500 added to your nest egg tax free (until retirement). But some financially struggling companies like General Motors, Kodak, and Frontier Airlines have suspended their 401(k) matches this year. Plus, 4 percent of companies plan to eliminate the match next year, according to a Watson Wyatt survey of 248 companies in October. So, it's particularly important to get the match while you can.
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Avoid Early Withdrawals
Tweet Share on Facebook December 23, 2008 CommentAs unemployment rises and healthcare costs skyrocket, it's more tempting than ever to borrow from your retirement savings to make ends meet. About 18 percent of Americans have prematurely made withdrawals from their retirement accounts because of the recession, according to a Bank of America survey. The top reasons were to pay off credit card debt (26 percent), pay down a mortgage (22 percent), and cope with job loss (22 percent). "Do all that you can to cut expenses and find other sources of cash before breaking the lock on your retirement piggy bank," advises Beth Almeida, executive director of the National Institute on Retirement Security.
Catching up with those early withdrawals will be difficult. "When the money is out of your retirement account, you rob yourself of compounded investment returns. And if you don't pay the loan back, you'll have to pay Uncle Sam taxes on the loan and a whopping 10 percent penalty," Almeida says. Plus, if the worst-case scenario should strike and you're forced to file for bankruptcy, your retirement savings in a pension, 401(k), or IRA are protected from creditors, while most other assets are not.
