November 8, 2019
Does Your Company Offer a Retirement Plan?
One of the most discussed topics in the United States is retirement security. Few Americans have set aside enough savings to live comfortably throughout retirement. In fact, the most recent National Retirement Risk Index (NRRI)* found:
“…half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65 and annuitize all their financial assets, including the receipts from a reverse mortgage on their homes. This analysis clearly confirms that many of today’s workers need to save more and/or work longer to achieve a secure retirement.”
One of the easiest ways to save for retirement is in an employer’s plan. However, not everyone has the opportunity to do so.
You may not have realized it, but less than 10 percent of private sector companies offer pension plans, and not quite 50 percent offer 401(k) or similar types of retirement plans. As a result, a significant number of working Americans don’t have a chance to save for retirement in a workplace plan.
If you’re not sure whether your employer offers a plan, ask. If it does, gather as much information about the plan as you can. Here are a few questions to ask:
- What type of retirement plan is available? Some companies offer more than one type of retirement plan. If you work for a large company, you may have access to a pension plan or 401(k) plan. If you work for a smaller firm, you may have access to a SIMPLE IRA (Savings Incentive Match Plan for Employees Individual Retirement Account), SEP IRA (Simplified Employee Pension Individual Retirement Arrangement), or payroll deduction IRA (Individual Retirement Account).
- Will your retirement income be taxable or tax-free? Your company’s 401(k) plan may allow different types of contributions. For instance, you may be able to make:
- Traditional contributions. These contributions are made before taxes, so they may help reduce taxes today. Taxes will not be owed on the money contributed and any earnings until money is distributed from the plan.
- Roth contributions. These contributions are made with after-tax dollars, so there is no tax break today. However, contributions and any earnings are tax-free when you withdraw them, as long as the distributions are qualified.**
- Catch-up contributions. These contributions give all older Americans the chance to save more for retirement. Plan participants who are age 50 or older, can contribute an additional $6,000 to a 401(k) plan each year.
- After-tax contributions. These contributions may be available to those fortunate individuals who can afford to contribute the maximum to a workplace plan and still save more. As long as IRS rules are met, after-tax contributions may be transferred into Roth IRAs and deliver tax-free retirement income.
- Does the company make a matching contribution? Some employers make matching contributions. The amount of the matching contribution varies from plan to plan. Regardless, it’s free money you receive just for participating in the plan. For instance, a company might contribute 50 cents for every dollar you contribute, up to 5 percent of pay. If a match is offered, try to contribute enough to receive the full match. Even if you can only save a small amount, receiving the employer match can increase that amount significantly.
Make sure you know what plans are available and when you are eligible to participate. Human Resources (HR) should have the information you need.
Once you have gathered information about your plan, there are other questions you’ll need to answer, too:
- How much should I save? The answer is likely to be: As much as you can afford to save. Let’s face it. The future is unknown. There are a lot of variables to consider when planning for retirement. For example, no one can be certain:
- How long they will be able to work
- How long they will live
- How investment markets will perform
- What may happen between now and then
- How should I invest my savings? Once you’ve decided how much to save, you’ll need to determine how to invest your savings. Many workplace retirement plans offer diverse options such as stocks, bonds, and other investments. Each investment offers distinct risks and rewards. Before you choose investments, decide how much risk you are comfortable taking. In general, people who are further from retirement can tolerate more risk than people who are close to retirement.
If your employer offers a workplace retirement plan, count yourself fortunate and sign up. Don’t let uncertainty about how much to save or where to invest prevent you from participating. We are happy to help you calculate a replacement ratio, decide how much to save, and evaluate investment choices. Just give us a call at 203-967-2231.
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management
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- Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
- Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
- The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
- All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
- The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
- The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
- Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
- The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
- The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
- International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
- Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
- Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
- Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
- Past performance does not guarantee future results. Investing involves risk, including loss of principal.
- You cannot invest directly in an index.
- Stock investing involves risk including loss of principal.
- These views are those of Carson Group Coaching, and not the presenting Representative or the Representative’s Broker/Dealer, and should not be construed as investment advice.
- This newsletter was prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with the named broker/dealer.
- The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
- Consult your financial professional before making any investment decision.
https://crr.bc.edu/wp-content/uploads/2018/01/IB_18-1.pdf (Pages 1-2, 7)
ADV & Investment Objectives: Please contact The Dowling Group if there are any changes in your financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Part II of Form ADV and is available for your review upon request.
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