Americans try to plan ahead for retirement but many feel
they simply can't afford to save right now for a far-away future. Of those that
are actively saving, 401k plans are the hands-down favorite. But many
are not taking full advantage of this defined contribution plan, whereby you
choose the amount of money your employer places into your account – often with
an additional contribution from your company.
Charles Schwab's new 401(k) Participant Survey showed that 87% of
respondents value this workplace benefit above most others, including an extra
week of vacation time. The problem is that workers find the plan rules
complicated, and their lack of understanding inhibits them from utilizing the
accounts to their fullest. Worse yet, participants aren't asking questions in
order to overcome this knowledge gap.
Interestingly, both the Natixis and Schwab studies find this
to be the case, with the latter noting that an equal number of employees
consider 401(k) plans to be as incomprehensible as employer-based health
...and too passive
Surprisingly, part of the problem seems to be one of the retirement option's
main attractions: its passive nature of saving. Once workers join, they
appear to adopt a "set and forget" mind-set, allowing the account to
grow without any additional input. The Schwab poll found that respondents
reported spending more time researching a new car purchase than considering
choices for their 401(k) account.
Natixis found a similar lack of gumption, noting that
passive participation must become more active if employees are to benefit fully
from this savings option.
How employers can
Natixis notes that nearly half of respondents said that they would step up
their 401(k) contributions if they had a better understanding of how their plan
worked. Employers can be a big help here, ensuring that workers have adequate
information on a regular basis. Since most employees wait until they are close
to retirement to seek assistance, keeping workers up-to-date is the best way to
spur involvement. Employers can increase their matching contributions, as
How you can help
Become more active in your 401(k) plan by asking questions of your employer.
Overcoming the inertia that seems to blanket 401(k) participants is an
important first step, since many workers report that they do not take advantage
of employer-supplied planning tools, despite convenient access.
If you don't know which questions to ask – or are not
satisfied with the answers you receive – engage the services of a financial
advisor. Schwab's study shows that 70% of those surveyed expressed high levels
of confidence in their investment decisions with the aid of an advisor,
compared with 39% of those who did not avail themselves of such services.
Do your own research, as well. The most important thing is
to get involved, and stay involved – your future literally depends on it.
How to get even more
income during retirement
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here to access the full article on Motley Fool.