First of all, as Thanksgiving officially ushers in the holiday season, I'd like to give thanks to all of you -- your questions, your concerns, your feedback are vitally important to me and to the content of this column.
In addition, while "Your $ Matters," by its very nature, deals with financial issues, when I reflect upon the past year, I find that I am most thankful for things which are not monetary -- my husband, family, good health, the joy we derive from our pets, the friendships we have. I would guess the same is probably true for you, as well.
Still, the reality is that taking care of ourselves and those we love requires money -- to pay for health insurance, vet bills, dental cleanings, new mittens, healthy food. And having adequate money on hand for major bills -- college tuition, for instance -- takes planning. So it is especially disturbing to me to learn that for the second year in a row, there has been a decline in the number of eligible employees who are participating in their company's retirement plans.
Nevin Adams, editor-in-chief of Plan Sponsor magazine, says the average 401(k) participation rate dropped to 72.6% in this year's survey -- down 3.6% from the 2002 level.
"Frankly, we've always been troubled that 100% of eligible employees don't contribute to their company's retirement plan," says Adams, "But for those who are worried about how Americans are going to take care of themselves in retirement, it's downright scary to see the rate decline again."
I agree. Especially since "inertia" best describes how most people deal with their retirement accounts. In other words, once you stop, it's hard to get started again, meaning you could potentially miss out on years of tax-deferred savings.
The decline in 401(k) participation comes despite the fact that sponsors of these plans, i.e. employers, have tried their darndest to get employees to sign up.
According to Adams, "Plan sponsors have spent a lot of money and time to get out the message about the need to save. Many even offer some direct financial incentive, such as company matching contributions, to encourage people to do what they ought to do on their own." He admits that there is not much more that employers can do at this point. After all, folks have been hearing about this for years and yet roughly 30% who are eligible to participate still don't.
The question is, why not?
The answer may be part attitude, part economics, and part current events.
First, since "retirement" seems like such a far-off goal for many of us, we tend to put it on the back burner while we spend money on more immediate concerns such as paying the mortgage, buying groceries, and (let's face it) those "splurges" we're all prone to. People tend to organize their bills into those that are 'here and now' and those that are 'down the road.'
"Setting money aside for retirement is what you do AFTER you've paid today's' bills," says Adams. "People also tend to over-estimate how much time they have to left to make up the difference and under-estimate how much they're going to need."
In other words, if saving for retirement is something you pan to get around to "one of these days," you could very well find out that it's too late. That's why you need to built it into your budget as a mandatory monthly expense, as opposed to considering it one that's optional.
As for the economic factors, you can probably think of a few which are competing for your dollars: higher gasoline prices, having to pick up more of the tab for your health insurance premium.
And let's not forget good, old-fashioned fear, in light of what occurred in the stock market from early 2000 through spring of this year. Although investors have regularly been reminded that the financial markets go down as well as up, back in the late 1990s it was hard to believe it could happen. Or that the sell-off in the stock market could be as steep or as long-lasting as it was. The second worst, actually, in history. After that kind of an experience, it's hard to believe stocks could ever go up again.
But if you were brave enough to open your June quarterly statement, you undoubtedly breathed a sigh of relief. Adams predicts, "A lot of people are going to get their December statement and feel like they just received a Christmas bonus."
Unless, of course, you're among those who stopped participating in your company's retirement plan. "People who stayed with it are almost assuredly better off than those didn't," says Adams. That's because in those especially dark days of 2001 and 2002, your contributions were accumulating shares of the stock mutual funds in your 401(k) at a faster rate, since the share prices had declined to bargain levels. Now that you own so many more shares than you used to, even a modest increase in stock prices can translate into a significant jump in your account value.
So, my friends, enjoy the holiday season. Remember our troops and the sacrifices they are making on a daily basis so that we at home can continue to watch football games, break bread with our loved ones, shop, worship, and work in relative security. And for your own financial security, think about making a bigger commitment to your company's retirement plan next year. If you know of an employee who does not participate, help him/her to understand the benefits.
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