CFOs Say More Increases in 401(k) Matches Are Coming

CFOs Say More Increases in 401(k) Matches Are Coming

CFOs Say More Increases in 401(k) Matches Are Coming

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A majority of surveyed chief financial officers and finance executives expect the tightening labor market and new cash reserves resulting from a slashed corporate tax rate to lead to more wage increase by the end of the year.

Two-thirds of 127 senior executives surveyed by Prudential and CFO Research said they expect further wage increases.

Some considerable portion of those expected increases would benefit retirement savers. Over half of the executives—57 percent—expect to increase matches to 401(k) plans.

The Tax Cuts and Jobs Act, passed on a party line vote in the Senate and signed into law last December, cut the corporate tax rate from 35 percent to 21 percent and allowed for full expensing of investments in business equipment.

In the ensuing months, many prominent firms announced one-time bonuses, increases in pay for lower-wage hourly workers, increases in 401(k) matches, and additional discretionary contributions to defined benefit plans.

According to the White House’s Council of Economic Advisers, almost 500 firms had announced bonuses or pay increases by April 8, affecting more than 5.5 million workers.

Other companies announced increased matches to 401(k) plans.

“We’ve seen client companies take advantage of the new tax law by providing employees with increased retirement benefits,” said Michael Knowling, Prudential Retirement’s head of client relations in a statement.

Cigna, the fifth largest health insurance payer in the country by revenue that covers 15 million subscribers, announced a permanent increase in its company match by 1 percent for its 30,000 employees. Cigna sold its retirement business to Prudential in 2003. Prudential Retirement is the record keeper for Cigna’s $5 billion 401(k) plan.

“The net financial benefits of U.S. tax reform are an opportunity for us to continue to demonstrate our commitment to our employees.” said John Murabito, Cigna’s executive vice president for human resources, in a statement.

All of the companies surveyed by Prudential also sponsor defined benefit pension plan for either current or former employees. Three-quarters of surveyed executives said they are likely to make “substantial” contributions to DB plans by September 15, the final date at which contributions can be deducted at the previous 35 percent tax rate.

Eight in 10 executives said they expect the increases in wages and benefits to improve productivity and positively impact company bottom lines.

Critics of the TCJA have argued the lower corporate tax rate will mostly result in stock buybacks and higher dividend payments to shareholders, and not increased wages and benefits to rank-and-file employees.

Four in 10 Respondents in Prudential’s survey said they plan to do both as a result of the tax cuts, to the benefit of investors—among them those employees that own company stock in 401(k) plans.

Cigna’s common stock accounts for 14 percent of assets in its 401(k) plan, according to Brightscope. The company has not announced a share buyback, but is currently exploring a merger with pharmacy benefits manager Express Scripts. A proposed merger with Anthem was blocked by the Department of Justice last year.

In the first quarter, $242.1 billion in share repurchases by public companies were announced, a record at the time that did not stand for long. The second quarter saw another $433.6 billion in share repurchases. Goldman Sachs is predicting share repurchases could hit $1 trillion for 2018.

Most of the finance executives surveyed by Prudential also expect accelerated capital investment as a result of the TCJA, potentially spurring further economic growth—and potentially further increases in wages, notes the report.

Increases in wages and benefits are expected to translate to improved worker financial wellness, the study says.

But how much of an improvement in aggregate financial wellness will not be calculable immediately. “Measurable movement on these metrics will require the passage of time,” the report says.

Almost 1 in 3 Millennials using retirement money to finance homes

Almost 1 in 3 Millennials using retirement money to finance homes


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When you’re a cash-strapped aspiring homeowner, you may start digging through all your emergency funds to get the home of your dreams. In fact, a new Bank of the West’s survey of over 600 Americans ages 21-34 found that nearly 1 in 3 Millennial homeowners have used their retirement funds as down payments for their home.

When you’re a cash-strapped aspiring homeowner, you may start digging through all your emergency funds to get the home of your dreams. In fact, a new Bank of the West’s survey of over 600 Americans ages 21-34 found that nearly 1 in 3 Millennial homeowners have used their retirement funds as down payments for their home.

The survey found that Millennials are willing to sacrifice their far-off future for their homeowner dream of the present. Fifty-six percent of Millennials said that owning a home was a bigger priority than paying off debt or retiring comfortably. Is borrowing from your retirement a smart move? Experts have mixed feelings about this decision.

Pros and cons of using retirement savings for buying a home

The pros of using retirement money is dependent on if your home is a good investment or not. How long are you planning to stay in your home? Is this house in an up-and-coming neighborhood? What are rental prices like in your local area? These are questions that Abby Hayes, a personal finance blogger who has written for The Dough Roller, said that you should ask yourself before you withdraw retirement money.

But the big downside is that you are risking your future financial security. That’s why Bank of the West finds this trend “alarming.” Once you take money out of your retirement account, it can be too hard for you to catch up on payments later on. “Millennials are so eager to become homeowners that some may be inadvertently cutting off their nose to spite their face,” Ryan Bailey, Head of the Retail Banking Group at Bank of the West, said. “To avoid buyer’s remorse, Millennials should cover their bases and kick the proverbial tires—reflecting on their physical and financial wishes for a home before they sign on the dotted line.”

Weigh the decision of each investment carefully before you ink the deal. Take it from homeowners who regretted their decision. Forty-one percent of Millennials surveyed said their home stretched themselves too thin financially. And 44% of Millennials said they discovered damage to the house or realized too late that the space did not work for their family.

Hey millennials, you’re going to need to start saving more for retirement

Millennials already stretched finances could face a new stress: slower growth of the U.S. economy.Compared with their parents, todays younger workers may need to save more of their income for retirement, according to a new NerdWallet report.

A number of analysts predict that the continuing pattern of slower growth that has taken hold since the Great Recession could cause stock market returns to fall from 7%, the annual average since about 1950, to a possible 5% in the decades to come. And that could hurt investors saving for retirement.

The new goal for retirement

The difference of two percentage points in broad stock market returns has big implications for younger adults who are just starting to save for retirement and also for those who’ve been investing for about a decade. NerdWallets analysis shows that millennials, who could earn a 5% return over the bulk of their investing lifetimes, may be required to save 22% of their annual income to make up the gap. Many retirement experts currently recommend saving 15% of annual income.

The era of supernormal returns is over, says Martin Small, the head of U.S. iShares for BlackRock, the world’s largest asset manager. Over the longer term, younger investors should expect yields and equity market returns to be low.

NerdWallets analysis

To help a millennial investor prepare for the future, NerdWallet analyzed the saving needs of a 25-year-old earning $40,000, the median salary for ages 25-29, according to the U.S. Census Bureaus 2015 Current Population Survey.

Based on the 7% average in stock market returns each year since 1950, a 25-year-old earning $40,000 can meet a common retirement goal of replacing 80% of his or her income by age 67 by saving 13% of annual income.

But if average annual stock market returns fall to 5%, NerdWallets analysis shows a 25-year-old will have to set aside 22% of annual income to save the same amount. Thats an increase of $3,400 this year equivalent to over three months of rent, based on the median monthly rent of $937 for 25- to 29-year-old households.

Image: Nerdwallet

How millennials can start preparing now

Start saving: In addition to saving more income, lower investment returns mean millennials may need to start contributing earlier to a retirement savings account than their parents did, or plan for longer careers. Use a retirement calculator to assess progress toward retirement goals and identify potential gaps.

Take advantage of tax benefits and employer matches: Estimates show a quarter of employees arent contributing enough to get the full 401(k) match. That match is free money that gets you closer to your savings goals.Those who dont have a 401(k) can get a tax deduction by making contributions to a traditional IRA.

Dont stash your retirement money in a savings account: Focus first on earning your employers 401(k) match and setting aside at least $500 in case you need quick cash. Then, consider opening a Roth IRA account and start funneling savings into that. By investing in low-cost vehicles like exchange-traded funds and index mutual funds tied to the overall stock market, like the S&P 500 Index, your money will go to work for you over the decades rather than collecting the lowinterest rates of most savings accounts.

Jonathan Todd is a data analyst at NerdWallet, a personal finance website: Email: Twitter: @yontodd.

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Can you Contribute to Both 401K and IRA?

401K or IRA?

Can you Contribute to Both 401K and IRA?

The 401k is a workplace retirement account and the IRA is an individual retirement account. If you already have a 401k, you can still open an IRA and contribute to both accounts. In fact people are always encouraged to open an IRA in order to supplement the retirement plan offered by the employer. It’s not only a great way to increase retirement savings but also allows you to get certain tax advantages when it’s time to retire.

Why open IRAs

Having your 401k alone is simply not enough. You can always open an IRA in order to access more investment options which are not present in your workplace retirement account. With a traditional or Roth IRA, you are able to make contributions and earn tax benefits. A traditional IRA allows you to contribute pretax dollars and pay taxes when you are making withdrawals later in the future whereas a Roth IRA allows you to withdraw money without paying any taxes.

Contribution limits

If you own both a 401k as well as an IRA, beware of certain contribution limits that hold. While you are allowed to contribute to both accounts, the total amount of contribution per tax years should not exceed a certain threshold set by the IRS. As at 2014, the limit was set at $5,500 which means you are not allowed to contribute more than this per tax year. There are also limits that are placed in each type of IRA.

Are you eligible for an IRA?

Eligibility will be determined by the type of IRA. For instance, anyone can open a traditional IRA but the contributions can only be made until the age of 70 ½. For the Roth IRA, individuals are only eligible to open if they have an annual gross income of $127,000 and $188,000 for couples (check the investment elegibility for a gold IRA here). These limits were set by the IRS in 2013 but the amount is likely to increase in future. For the traditional 401k, you must be working for an employer who offers this form of retirement plan. Roth IRAs do not have income limits but you have to work for an employer who offers the 401k in order to qualify for one.

Before you choose to contribute to both IRA and 401k, understand the taxes, penalties and contributions that are required. You also need to know that there are certain maintenance charges which you have to pay the custodian when it comes to an IRA.


HAve enough money at retirement

Avoid Running Out of Money in Retirement

Have You Planned To Have Enough Money For Your Retirement?empty wallet

As far as finances go, a major concern of most retirees is running out of their retirement savings. It is indeed a grave predicament to find oneself in, and one that should be avoided at all costs. If you are wondering what you need to do in order to ensure your nest egg lasts you for as long as you live, here’s what:

The first thing you need to do to secure yourself against financial distress in your retirement years is to maximize your social security. Even though you are entitled to social security payments for the rest of your life, it is important to understand how to maximize these payments. Do this by carefully deciding when to sign up for benefits and coordinating your claiming decisions with your spouse. If you delay in taking Social Security for a year, you get an 8 percent increase in the benefits that you take, and this is true for every year you delay.

If you wish to have enough money to last you the entirety of your retirement, plan your finances as if you will live into your 90s or even until you are 100. Many people will plan for too few years only to live longer and become completely dependent on Social Security.

Protect yourself against inflation by investing a portion of your money in investments that have the ability to keep up with inflation. Equities, commodities, real estate, investing in gold and even some government bonds have historically kept pace with inflation and you should consider adding these to your portfolio.

If you are willing and able to afford it, consider investing a portion of your money in an immediate annuity. An immediate annuity guarantees you a stream of payments that will continue for the rest of your life. Talk to your insurance company about this, but remember not to annuitize all your money because you need funds available for emergencies.

If you want your money to last you for the rest of your life, you need to control your withdrawal rate. Take only small distributions from your portfolio, and withdraw even less during those years when your portfolio is behaving poorly. A 4 percent withdrawal rate will increase the chances of your money lasting longer, and if you can go below that, the better. Anything higher than 5 percent is risking running out of money during your retirement.

Retirement can be a great time, or a distressing one, depending on how you plan your finances in your earlier years. Make the right financial choices and you’re most likely to have a great retirement.

saving for your retirement

Are You Saving Enough For Your Retirement?

Are You Saving Enough For Your Retirement?retirement

One day you’ll be retired and relaxing on the beach, watching the sun go down. Whether your brow will be creased in worry, or you’ll have a big contented smile on your face will depend on this-whether you prepared adequately for your retirement. Preparing for your retirement should be done early enough and diligently. You do not want to get to your retirement only to realize that your retirement savings are not enough to last you the entirety of your retirement/life. If you have been wondering whether you are doing enough to save for your retirement, here are signs that should tell you that you aren’t:

You have not started saving

If you are waiting to start saving once you get to age 40, you are setting yourself up for a very hard retirement life. The earlier you start saving for your retirement, the better; as you will have more money saved for your golden years.

You have a hard time paying for medical bills

If paying out-of-pocket medical expenses is a struggle to you currently, this is a sign that you need to prepare yourself very well for old age, as far as medical expenses are concerned. This is especially so because as you grow older, medical expenses becomes even more pricey.

You have credit card debt

If you have credit card debt, there is a high probability that saving for your retirement is not even on your list of priorities right out. Straighten out your debt and get to saving. And while you are at it, you might want to avoid accumulating any more credit card debt.

You’re spending more than you’re saving

If a huge chunk of your income goes towards expenditure which is not even accounted for, you are definitely not getting prepared for retirement the right way. It is recommended that you dedicate 10 to 15 percent of your income towards your retirement savings.

You do not know how much money you will need to retire

If you have no clue how much money you will need to continue your current lifestyle after you retire, high chances are you are not saving enough, if at all you are.

You’re not getting the full match from your employer’s 401(k) match

If the company you are working for offers to match a portion of your 401(k) contributions, contribute enough money to get the full employer match. This is a quick and easy way to boost your retirement fund, and you will actually be getting free money. If your employer offers this program, you are doing yourself a great disservice if you are passing it up.

retire by investing in gold

A Working American Retires at This Age. What about You?

According to optimists, Americans have more retirement income; however, statistics disapprove this. Retirement is an important time in anyone’s life and many people spend time planning for it. Many policy makers are more concerned with ensuring retirees have enough income after they stop working. However, many people think the best solution is for people to have more working days so they have enough money during retirement.

The average retirement ageinvest in gold to retire early

According to the latest data, men retired at an average age of 63.9 and women at 61.9. In 1960s, most men retired after 65 years but decades after, early retirement became evident with most men retiring below 62 years in mid 1990s. However, in the last two decades, the trend has reversed with the average age increasing rapidly. Although they still fall below their peak, they have stayed at 64 for the last five years.

Why Americans started retiring later

Alicia Munnell, from Centre for Retirement (CRR) in Boston makes several observations for the latest rise in the age of retirement. First, many people decided to work longer because of the Social Security provisions that encouraged longer work; like delayed retirement credits up to those with 70 years and less restrictive earnings test. Besides, the Social Security delay gives couples more benefits during their joint lifetimes.

Additionally, dynamic workplace trends increased retirement age even further. The removal of retiree health insurance perks and traditional pensions triggered people to rely on their finances. This led to delayed retiring to enhance security. Jobs with less physical involvement increased the average working ages. This means that Americans who worked longer had longer life spans and better health.

Last year’s Gallup poll made similar findings; the average age of retirement increased from 59 years in 2010 all the way to 62 in 2014. This came alongside similar increases in the age at which the young American employees should retire. Gallup mentioned a number of causes such as poor economic circumstances, insufficient retirement savings and the unwillingness of baby boomers to retire.

When would like to retire?

The CRR study recommends that the ideal way to secure a retirement would be to work longer. But supposing you wouldn’t want to work unnecessarily longer? Of course, to be more financially secure, you need to work longer because you are able to save more for the future while settling the current bills. Besides, collateral perks such as higher Social Security payments accompany delayed retirement.

Nevertheless, if you wish to retire earlier than an average American, you still have an option: boost your current savings now to create a bigger retirement investment when you finally choose to stop working. The savings you make in your 40s could give you about $2.50 and $7 in retirement. On the other hand, the amount you save in 30s could translate to $4 to $17 when you stop working.

Whether to retire late or early is not based on finances alone since many people have different perspectives on how their jobs benefit them. Nevertheless, those who would like to base their retirement on their schedule, making earlier investments for your retirement is the perfect way to go.