7/20/2011 12:22 PM ET|
7 signs of a good 401k plan
The recession has made employers less likely to contribute to workers' retirement savings, or less generous with the options they do provide.
A good 401k plan with generous employer contributions can help propel you toward a secure retirement. But high fees and poor investment choices make some 401k plans a bad deal, even after accounting for the tax breaks.
Here are a few ways to tell if your company is providing a competitive 401k plan.
A generous 401k match. Post-recession, fewer employers are offering a 401k match. Some 85% of plans provided an employer contribution in 2010, down from 95% in 2007, according to a Vanguard analysis of 2,000 401k plans with more than 3 million participants.
Companies that still provide a match continue to offer about the same amount they did in previous years. The maximum possible match remains a median of 3% of pay. The most common 401k match is 50 cents for each dollar saved, up to 6% of pay. But only a quarter of plans provided this exact match formula.
Vanguard managed plans with more than 200 distinct match formulas in 2010, and some were far more generous than others. The matches range from less than 1% of pay to more than 7% of pay. Most employers require workers to save between 4% and 6% of their pay to get the maximum possible match.
Immediate eligibility to participate. Only about half (52%) of companies offer new employees immediate eligibility for the 401k plan. The rest require between one and three months of employment (24%) or even as much as a year of service (15%) before workers qualify to join the retirement plan.
Larger companies are more likely to offer immediate eligibility than smaller companies. But once employees begin to save in the 401k plan, they may not yet be eligible for the 401k match.
A quarter of employers require one year of service before workers may receive matching contributions, and almost a third of companies require between one and six months of job tenure. Less than half (43%) of companies immediately contribute to the 401k accounts of new employees.
Immediate vesting. You won't get to keep your employer's contributions to your 401k account until you are vested in the plan. Almost half of plans (46%) immediately vested participants in 2010. However, about a third of employers (31%) require five or six years of service before you can keep the entire 401k match provided.
"Sponsors don't want to spend benefit dollars on short-term employees," says Jean Young, a senior research analyst for the Vanguard Center for Retirement Research. "If you have a high-turnover workforce, you might rather see your benefit dollars go to your long-tenured employees."
Some 401k plans have cliff vesting schedules, in which you don't get to keep any of the match until you've been employed for a certain number of years. Other matches are graded, meaning you keep a gradually increasing percentage of the match as your tenure with the company increases.
"The most generous plans either have immediate vesting or vesting schedules that are on the shorter end," says Joshua Itzoe, a certified financial planner for Greenspring Wealth Management in Towson, Md., and the author of "Fixing the 401(k): What Fiduciaries Must Know (and Do) to Help Employees Retire Successfully."
VIDEO ON MSN MONEY
Some times you just have to Man up and take charge of your life.
I could see that working at my comfortabl 50K a year job for the next 20yr was not going to cut it, so I left my 40hr a week job at the Airlines and took a job in Iraq and now in Afghanistan(98 Hr a week) My wife and I have a 5yr plan with yearly goals set, and no it's not buying new cars and a new home, it is paying everything off and INVESTING.
Yes it is a sacrifice being away from family and friends but 5yr is equal to 30yr at my 50K job.
So yes you can retire comfortably at the age of 55 or 60 if you are willing to make the sacrifice.
It's America, you do have choices. I have 2yr's to go.
How can anyone save $16500 when you only gross $30-35000 per year?
When are the city, county and state workers be put on the same page as the private sector?
Their program provides a gauranteed yearly increase in pension program and are 100%
funded unlike the private sector that has a snall percentage of any match and no guarantee
of yearly increase if the markets tank.
Why are the legislators generous to a fault when not spending their money but their constituents tax dollars?
I am tired of playing against a stacked deck dealth out by legislators who could care less.
Invest.....Invest...Invest....... ? ...........just not in the DC corrupted world of the Wall Street Casino.
Free market investment........good luck with that. I have been burned significantly long enough.
Tell Wall Street and All the politicians to go to hell. We are coming for them all.
Where are the Congressional REFORMS PROMISED.......NO ONE IN DC goes to JAIL.
But they are not untouchable.
I personnally have watch the money go up and go down. But whenever it goes down I just try and throw more money at it. (which is buying low ) I have the dream like most to be a millionaire when I retire. But unlike most I am actually working on it with the 401k, Roth IRA, and a investment account.
Fact you must earn more than you spin.
I earn $45000 before taxes and my investing 5400 a year now ( investing all my raises as I get them). I now have about 36,000 and another 20 years to go. :) wish me luck and to you as well. The interest lately has been at 22.3% (not a good time to buy thinking about saling and putting it in the 401 saving to lock it in figure it will drop soon)
By my estimates I should have a Million before I can retire with 30 years at work 60% of pay from pension at 62 years old (20 years from now)
i am also trying to start a lawnmowing business on the side.
I will say if you treat it like you are buying a business ( your own investment firm) I think you will do better. Remember every dime you put in, is a dime toward your own good life.
Good luck on finding one that will do any of this stuff!!!!! this is the US greed is what our US companies are about .
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