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My Employer is Eliminating 401(k) Matches

retirement Companies are responding aggressively to the bad economic news. Layoffs, hiring freezes, and salary freezes have been some of the most common actions so far.

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Now, more and more employers are looking at eliminating the matching of 401(k) contributions. According to a survey by Watson Wyatt, the global human resources and financial services firm, things are changing quickly. In October, 2% of firms said they had already cut back on these matches and 4% said they planned to. Two months later, in December, 3% had already made the cut and 7% said they intended to.

And these are large companies. Established brands that we all know. Motorola, FedEx, Kodak, and Starbucks just to name a few.

They’re usually using the word “suspend” rather than “eliminate” when they announce these cuts. But it raises a question:

If my employer stops matching my contribution to my
401(k), should I still keep making contributions myself?

It forces us to save

This is perhaps the biggest reason to keep making contributions. Financial planners have said for years that we should pay ourselves first. Investing it before we get it, as we do with our 401(k), is the best way to make sure that happens.

Most people report that they don’t really miss the money. It’s like the taxes that are deducted from our paychecks – the government knows most of us won’t miss the money if we don’t see it.

Of course, there are ways to set up an automatic deduction from our checking or savings account for investments outside of a 401(k). That’s really close to having it deducted from our paycheck, but it’s not quite the same. That little variation can make a bigg difference for some people. You have to judge that for yourself.

Higher limits

The next best option to a 401(k) for most people would be an IRA because contributions may also be deductible. You should check with your financial advisor about the specifics of your situation.

Because you invest before paying taxes, it’s as if the government is making part of the contribution for you. For example, if you made a $1,000 contribution to one of these retirement plans and you’re in the 25% tax bracket, you would pay $250 less in taxes. So, in essence, you’re only out of pocket $750.

With either plan, you don’t pay taxes on the money you earn on your investments until you pull it out. Deductible and deferred – that’s a pretty powerful combination.

Where the 401(k) gains favor is that it has higher maximum limits – your contributions to your 401(k) can total up to $16,500 in 2009 ($22,000 if you’re over 50). You can’t contribute more than $5,000 to an IRA in most cases.

If my employer cuts or eliminates my 401(k) match, are there
reasons to fund my retirement through another vehicle?

A lot of 401(k) plans offer fairly limited investment options and you may pay lower fees in a plan that’s not a 401(k). 

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The bigger issue

It’s not like we don’t already have a sense of it. But recent months have reinforced this paradigm. We can’t count on anyone or anything for any part of our financial future. We must take full control of our own finances. We have to build our own safety nets to make sure we are financially secure.

How much will you have at retirement?

It really boils down to three factors:

  • how much we invest
  • how much we earn on our investment (after all fees and taxes)
  • how long it is invested

From these three factors, we see that we have three options if we don’t want to retire on less money:

1st – We can try to earn more on the money we invest.
That involves taking more risk and we don’t have much appetite for that right now. So this probably isn’t going to fly with most of us.

2nd – We can postpone our retirement.
This buys us more time. People who are really close to retirement right now may not have much of a choice. They may have to do this. But if you still have some time on your side, there may be a better way.

3rd – We can increase our contributions.
Look at your budget and see if there is any way you can make up for the investment your company was making.

If your employer reinstates matching contributions, you can stop contributing at the increased rate and enjoy the extra money in your budget … or …

… you can keep making your higher contributions to give your retirement a kick!

To all our readers in Australia, happy Australia Day! And we hope our friends in India enjoy Republic Day!

And thank you so much for spending time with us today. Join us next time when we discuss extreme multi-tasking. Until then, here’s to your bigg success!

 

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(Image in today's post by woodsy)

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I Need a Day Off

puzzle CareerBuilder just released the results of their annual survey on absenteeism. They found that about one-third of all the people they surveyed had played hooky at least once in the last year.

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marylynnWhen I was a DJ working mornings, I had to be to work at 4 a.m. It’s hard to call your boss that early to tell him you won’t be in, even if you are sick!

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Here are the real reasons people played hooky, according to CareerBuilder:

#1 – they didn’t feel like it
#2 – to relax and recharge
#3 – to go to the doctor
#4 – to catch up on sleep
#5 – to run personal errands

Look at that list. Does that tell you how much pressure we feel in our day-to-day lives? Is the only way to remain psychologically healthy by playing hooky?

We also found it interesting that 10% of the time people play hooky is actually work-related. They don’t want to attend a meeting. They need some quality time to work on a past due project. They want to avoid a confrontation with a co-worker.

Companies today are trying to do more and more with less and less. That means you have fewer co-workers. Your day off may leave them in a bind. So try to plan for your time off. If you feel yourself feeling overwhelmed, talk with your boss. See if you could work a little extra for a few days to get a day off. Everyone will be much better off if you’re upfront.

As a boss, do everything you can to honor your employee’s request. If you know you can’t give him or her the requested day off, offer an alternative. Employees today prize flexibility. It’s one of the best things you can do to retain employees who give their best.

Excuses, excuses

CareerBuilder also compiled a list of some of the most unusual excuses employers heard in the last year. Here are three of our favorites:

“I hit a turkey while riding a bike.”
We wondered if this was really a way to save money on Thanksgiving dinner!

“I donated too much blood.”

We found it hard to believe that any blood bank would take too much blood. Maybe this person ran into a vampire!

“My wife burned all my clothes so I have nothing to wear to work.”
So, here’s a question – how is this person going to get out of the house to buy the clothes he needs? We hope he’s not our neighbor!

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georgeI remember one of my managers telling me about an employee who wasn’t at work. It’s my favorite excuse ever. This guy worked hourly and had already used up all of his personal days. He said he was so stressed out by his lack of money that he just couldn’t come into work! Guess what – he got more stressed out!

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What’s the worst excuse you ever heard?

 

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Top Threats to Your Career and Finances in 2009

By Bigg Success Staff
12-17-08

caution

We’ve all heard plenty of bad news recently, but the bad news now is that there is more bad news to come. While we must think about the opportunities in front of us, it’s also important to consider the threats to our careers and our finances so we can prepare appropriately.

Recession

Consumers, businesses, non-profits, and governments, all over the developed world, are learning a hard lesson about leverage. We will climb our way out of this recession but it will take some time. Before it’s through, it will be one of the, if not the most, severe recession since the Great Depression. 

Layoffs will continue. In most recessions, layoffs occur mostly at the bottom of the earnings / education spectrum. Expect this recession to be more evenly distributed, if not hitting higher end jobs harder.

Outsourcing

Companies will continue outsourcing, but here’s the difference. Manufacturing jobs have been getting shipped overseas for some time now. As fuel prices rose, there actually seemed to be a resurgence in companies bringing manufacturing jobs back on shore.

Now more white-collar jobs are at risk thanks in part to technology that allows information to be shared instantly from any place in the world with internet access. We found a great article that discusses the characteristics of jobs that can now be easily outsourced and jobs that can’t. It also lists what you can do to make yourself less vulnerable and provides a list of jobs by their level of risk to offshoring.

Deflation

Expect deflation to continue as everybody keeps a tight lid on spending, the credit markets remain relatively tight, and inventories of everything from housing to cars remain comparatively high. The good news is lower prices will remain, but …

Inflation

Governments in the developed countries have poured money into the world economy at unprecedented rates. At some point, once the credit markets loosen up and demand returns, inflation could become a problem.

We’ve just witnessed prices on everything from gas to groceries rising quickly. We could see it again. It will take wise leadership to know when to slam on the brakes on economic stimulus without tightening so much that another recession ensues.

If this happens, that cash stash will quickly lose its value. Investments in hard assets have typically performed well in times of inflation.

Delayed retirement

A number of retirees are being forced to look for work after the freefall of their portfolios. Even more people who planned to retire soon are putting those plans on hold because they need to bulk up their assets again before they stop working. This will create even more competition in already tight job markets.

Benefits

Employers are under intense pressure to cut costs. It’s reasonable to expect them to cut benefits. Even if it’s promised now, don’t count on having health insurance provided to you as a retiree. Even while you’re working, expect to cover a greater share of the premiums.

Also don’t be surprised if your employer cuts back or eliminates the matches on your 401(k). These aren’t the only benefits at risk, but they’re two of the most significant ones.

Access to credit

It won’t show up on your personal balance sheet, but your credit score will be an incredible asset. Cash will be king as long as prices remain in a deflationary state. At some point, cash along with the ability to access credit will open doors for opportunities that most of us will never see again in our lifetimes. 

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