But it isn’t just the sport itself that many employees miss out on. Less than 20 For example, percent of participants use a plan’s financial wellness tools, which frequently include free personal assessments, emergency fund-building and debt-payment calculators, and low-cost access to human advisors.
Ms. Brestowski notes that participants who use her financial health tools usually tend to increase their contributions to their 401(k) plans and take other positive steps toward retirement savings. “By helping people deal with the other financial stresses they face, you remove some of the barriers that stand in the way of retirement savings,” she said.
Tap into your savings before retirement
Sometimes retirement investors are their very own worst enemies: They do the labor of saving, but then dip into the account early to satisfy current money needs. Depending on the plan, between a 3rd and nearly half of 401(k) savers withdraw some or all of their money after a job change. Institute for Employment Benefits has found. And Vanguard studies have shown that 13 percent of workplace savers borrowed from their accounts prior to now yr and three.6 percent made emergency withdrawals. New federal rules taking effect this yr will make it even easier to access retirement accounts in an emergency by allowing annual withdrawals of as much as $1,000 without the same old 10 percent penalty for early withdrawals.
Not every early cash-out or borrowing is a mistake. Emergencies occur, debt can grow to be overwhelming. “If you’ve been laid off and need the money to make ends meet, or you have high-interest credit card debt, a cash-out might actually be the best use of your funds,” Ms. Benz said.
Ms. Benz suggests comparing the return you’d get from using the cash straight away — for instance, the “yield” you’d get from paying off a bank card balance at a 21 percent rate of interest — with the potential gains you’d forgo in your 401(k) plan. The pure math, especially for younger savers, normally favors staying the course. Thinking a couple of $5,000 withdrawal? Leave the cash untouched, and it’ll grow to $50,300 in 30 years, assuming a mean annual return of 8 percent, or $108,600 in 40 years, in accordance with a Vanguard evaluation.
But math cannot pay unexpected medical bills, nor can it cover your living expenses in the event you’re unemployed for an prolonged time frame. The key to recovering in the event you do must tap your account early, Ms. Brestowski said, is to mentally re-set yourself for retirement after the crisis. “Treat each withdrawal like a loan that you’re paying back with interest,” she said. “As long as you start saving again in a 401(k) plan, compound interest will do the rest.”
