Reduce 401k Borrowing Temptation Through Financial Education

December 09, 2016

401k, Financial Wellness

Joel Manzer

401kWe’ve previously shared our thoughts regarding The Good, The Bad, and The Ugly of 401(k) Loans, and also shared some insight about the Charles Schwab survey this past August.[1]

It’s good to be able to help employees when life happens, and that’s one aspect of why FinFit is available to businesses.  But helping employees to be financially ready when life happens is our goal.

Let’s take the old phrase, “Give a man a fish, he’ll eat for a day… but teach a man to fish, he’ll eat for a lifetime.”

Now let’s rephrase it for Financial Wellness, “give an employee a paycheck and they’ll live paycheck to paycheck, but teach an employee about financial wellness and they’ll be ready for when life happens.”

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The 401k Study You'll Never Forget

November 18, 2016

401k, Financial Wellness

Joel Manzer

401kIn August 2016, Charles Schwab conducted a survey of 1,000 employees between the ages of 25-70 who currently contributed to their retirement plan.[1]

The survey revealed that an employee’s 401k is their primary source of retirement savings.  It is also apparent that they desire help as less than half of those asked know how much they should save for a comfortable retirement.[2] 

70% of those who participated wanted personalized investment advice for their 401(k), and 85% said they would use a financial wellness program that would provide them with education, tools and resources to improve their overall financial health.[3]

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401(k) Loans: The Good, The Bad and The Ugly

October 05, 2016

loan, 401k

Joel Manzer

3182161_l.jpgAs a business owner, there may be times when an employee may turn to you to ask for help, such as an advance in pay, in order to address a particular hardship.  Of course you want to help, but lending money to an employee should only be considered after all other options are pursued.  There are risks and rewards associated with helping an employee in times of need, many can be associated with being legally compliant, which we share here:  “Employer Lending: Exposing Risks and Rewards[1]

There are other options that are available without becoming a lender – such as a 401(k) loan.  

According to SBA.gov,  If the employee has an account in your 401(k) and the plan allows loans, the business doesn’t have to become a lender. Instead, the employee can borrow up to 50% of his/her account balance (up to a maximum of $50,000). The plan must charge a reasonable rate of interest and repayment must be made in level payments over a period of no more than five years (there’s an exception to this repayment period for loans to buy homes). But caution the employee that if he or she leaves the job—voluntarily or otherwise—the loan must be repaid in full (usually within 30 or 60 days). The failure to do this results in having the outstanding balance treated as a taxable distribution; if the employee is under age 59-1/2, the distribution is taxable and subject to a 10% penalty. Find details about plan loans from the IRS[2]

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3 Ways Money Leaks Out of Your 401(k)

February 11, 2015

tips, 401k

admin

40521340_s.jpgMany people dip into their 401(k)s before retirement when they change jobs or experience a financial emergency. Workers who take early withdrawals from their retirement accounts often never replace the money and end up with significantly less cash in retirement. A recent Center for Retirement Research at Boston College report found that leakages reduce retirement wealth by about 25 percent. Here’s how money leaks out of retirement accounts and what you can do to prevent it.

 

Hardship withdrawals. Hard­ship withdrawals from 401(k)s are often permitted when the worker can demonstrate an “immediate and heavy financial need” for the money, which might include medical care, higher education costs or repairing or avoiding foreclosure on a home.

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8 Reasons You Should Never Borrow From Your 401(k)

40521340_s.jpgNearly 20% of 401(k) plan participants who are eligible to take loans against their retirement savings exercise this option, according to 2008 data from the Employee Benefit Research Institute. This number has remained stable since the early 2000s.

The average outstanding loan balance was 16% of assets. For plan participants in their 20s, the number is much higher, coming in at 29% of their savings, a percentage that drops as participants age, falling to 25% for those in their 30s, 18% for those in their 40s and 13% for those in their 50s. The figure is just 11% for those in their 60s. While it's great that older workers tend to borrow less, dipping into your 401(k) plan at all is a bad idea. In this article, we'll go over eight major reasons why you should focus on keeping your 401(k) plan until retirement, rather than using it as a piggy bank.

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Generations X & Y Lack Investing Direction

September 25, 2014

retirement, 401k, investing

Daniel Andrus

collegelazypoolmi-resize-600x338.jpgAdvisors who have focused their efforts on boomers’ retirement needs should make sure they’re not neglecting Generations X and Y. A survey conducted by Greenwald & Associates and sponsored by Security Benefit, a Topeka, Kansas-based insurer, found younger investors lack direction and could benefit from an advisor’s guidance.

The “Gen XY Financial Maturity Study,” released Monday, found two-thirds of Gen X and Y investors haven’t calculated how much they need to save for retirement. Furthermore, 65% say it’s harder for them to save than it was for boomers and older generations.

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Financial Education of 401K Plans are a Top Priority

Financial education of 401kTraditional pensions have mostly faded from the retirement landscape. American workers have been challenged to take on more responsibility for their financial future. Employer sponsored 401(K) plans with a company match have replaced pension plans as the primary retirement benefit.

A study by Pew Health Initiatives indicates that workers bear more investment risk and make more of their own decisions about their retirement savings. Some workers have thrived under this more individualized approach, amassing sizable balances in 401(K) plans. For others the 401(K) revolution has fallen short of its potential. Work, family and the immediate challenge of living paycheck to paycheck has distracted them from the need to save and invest in the future.

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