Tap into Workplace Savings Plans like 401(k)s and Get Some Financial Advice along the Way
As you're trying to save for your financial future...you are trying to save for your financial future, right? Your future is going to be here, and you need to be prepared for it. And that means saving for it because you're going to need income forever. You're going to need money forever. But you don't want to have to work to get that money forever, right? Wouldn't it be cool to sit back, recline in your La-Z-Boy, pop those bonbons into your mouth while flipping through Netflix? Wouldn't that be cool? And having a check show up in your mailbox, a deposit automatically arrive in your bank account? Pretty cool, huh? Well, the only way you're going to be able to get passive income is if you start to save now so that your money can generate that income in the future so that you don't have to work for the income that you receive. Well, the only way is to start saving now. And without a doubt, the best way for you to save for your future is through a retirement plan at work. Look, you're already working.
Ric Edelman: You're already earning an income. I'm hopeful that your boss makes available to you a retirement plan. 401(k), 403(b), TSP Thrift Savings Plan, or 457 plan. All of these are variations of a theme. They are all employer-sponsored plans. In fact, Edelman Financial Engines, the company that I founded along with my wife Jean, is now the nation's largest provider of advice to 401(k) plans. The company provides information for over 10 million American workers and actually provides financial advice to more than a million of them. And the need has never been greater. It is so important that you are getting the education you need to make sure you're understanding how best to manage your retirement plan at work, and that means you need to pay attention to this subject. The reasons are very clear as to why you should be saving in a retirement plan at work. Number one, it's automatic. The number one reason we don't get around to saving for our future is that we just don't think about it. We have other stuff to do. Our days are filled. We're busy, busy, busy, and we just don't have the time. We don't take the time to think about our life 20 or 30 or 50 years from now. Your retirement plan at work makes the whole thing automatic. Look, you get a paycheck, what, every week, every two weeks, you get paid once a month.
Getting your employer to kick in “free money” for your retirement
Wouldn't it be neat if your employer would simply siphon a portion of that paycheck, set it aside, and let the money sit there and grow for the next several decades without you having to do anything. That's how company retirement plans work. This automatic function makes investing truly painless. Not only that, many employers will put money into your account for free. If you put in a dollar, they'll put in a dollar. Oh, sometimes they'll put in $0.50 or some other formula. That match, that contribution from your employer is of massive value and something that you can't get anywhere else. So automatic savings, a free employer contribution, it's really terrific. But wait, there's more: tax benefits. When you put money into the retirement plan, that is money you're not paying taxes on. In other words, if you put a dollar into the plan, you're saving about $0.30 in taxes. So, no wonder so many people put so much money into retirement plans through their employer program. I can't encourage it enough. And by the way, since Edelman Financial Engines is the company that I founded with my wife and since I'm a big fan of the company and since I'm still an owner of the company, let me hasten to add, if your employer isn't offering a retirement plan at work, have them contact Edelman Financial Engines to talk about it. You'd be amazed how affordable it is.
Setting up a 401(k) plan just became easier
Your boss would be amazed how easy it is administratively, how inexpensive it is to offer a retirement plan these days. And if you don't like the investment choices that are available to you in your workplace plan, ask your boss to consider the options made available at Edelman Financial Engines. Here's the fascinating statistic that I think speaks volumes. Workers who have access to a retirement plan at work are 15 times more likely to save for retirement than those who don't have access to a plan. Well, that kind of makes sense, doesn't it? Since the plan offers so many benefits, since the plan is automatic, requires no effort on your part, naturally, people are more likely to save for retirement because they have access to a plan. But here's the crisis: 30% of all the workers in America work for private companies that don't offer a retirement plan. This helps to explain why we have a retirement security crisis here in the United States. And the pandemic has made all of this worse. You've heard about the great resignation. Millions of people quit their jobs last year. No more automatic investing for retirement. No more employer match. 40% of U.S. households are going to run out of money in retirement. How do I know this? Because every expert on the subject says so. If you look at the median retirement balance in this country for people who are 55 to 64 years old, the median retirement balance is $120,000.
How long is your retirement money going to last?
Half of this country is going to go broke before they're 75 years old. This is a crisis for the entire country. It's not merely a crisis for that family that runs out of money. It's a crisis for their children who are going to send money to their parents when their parents run out of cash. It's a crisis for the taxpayer because the government is going to step in with social service programs, Medicaid and other programs like Social Security to provide income to prevent everybody from being homeless. This is something where we're all in it together. If you are not saving for retirement, you need to start. If you are saving for retirement, you need to save more. If you have children, you need to start talking to them right now about their need to save for retirement. And you need to talk with a financial adviser who can help you decide how best you can save. Start with talking to your employer. Do they have a retirement plan? Are you participating? If not, get started. If they don't have a plan, ask them to contact Edelman Financial Engines about their services that could provide them the ability to create a plan for your benefit.
Am I saving enough for retirement?
One big question that I get very often is "Ric, how much should I be saving? How much of my paycheck should I be placing into saving for retirement?". I'm going to give you an answer and at first blush, it's going to shock you. But relax. It's not as bad as it sounds. Ready? Here it is. You should be saving for retirement 25% of your pay. Now hang on, as I said, it's not as scary as it sounds. First of all, you're contributing to Social Security. So, if you're doing 7.5% of your pay, your boss is matching that with another 7.5%. You're already 15% toward your total goal of 25%. Now, it's not looking so scary after all, is it? Let me take it a step further if you are saving 5% of your pay in your retirement plan and your boss is matching that contribution. There's another 10%. Guess what? You've got your 25% just by doing those two things: Social Security and your retirement plan at work with an employer match. Because the more you save, the more money you're going to accumulate. And I have yet in my 40 years in this financial services industry, I have yet to encounter anybody who has ever come up to me and complained that they saved too much money