Category: Personal Finance

How to Use a 401(k) Calculator to Maximize 2023 Retirement Savings 

Siân Killingsworth / 17 Feb 2023 / 401(k) Resources, Personal Finance

It’s never too early to start planning for retirement. If you’re not sure how much money you need to save to retire comfortably, a 401(k) calculator can help you figure out how much money you need to put away every month.

With just a few clicks, this tool can estimate how long it will take for your retirement account to grow into something substantial—and can even recommend tactics that may help boost your savings rate through lifestyle changes like cutting down on spending or earning more income.

What is a 401(k) Calculator?

A 401(k) calculator is a tool that allows you to estimate how much money you’ll have in your retirement savings account based on the amount of money that you contribute, as well as other variables.

It’s important to note that the results from these calculators are only estimates and shouldn’t be relied upon as a guarantee of future returns or performance.

How to use a 401K Calculator

To use a 401K calculator, you need to know how much you have already saved and how much you are able to put away each month. Next, estimate how much money will be needed for your retirement and then see if you can afford to save as much as possible each month.

In addition to these basic steps, there are also other questions that should be asked when using a 401K calculator:

Retirement Questions

• How long do you plan on working?

The more time between now and retirement, the more time there is for compound interest (the process by which investments grow at an accelerating rate) to work in your favor.

• How long do you expect your retirement to last?

Many people wish to retire early, but with life expectancy increasing, it’s important to remember to account for additional years in which you will need funding.

• What kind of retirement plan do you have?

If your plan limits the amount you can contribute to retirement savings each year, such as with an IRA, you may want to ask your employer to switch to a 401(k) plan. A 401(k) plan allows participants to contribute three times as much each year toward retirement as an IRA.

• What are your retirement goals?

Write them down and make sure they include the lifestyle you want to live in retirement.

Financial Questions

• What kind of investment options does your plan offer?

Some plans offer several types of investments; others have fewer options, and some have none at all. If your plan offers a variety of investing instruments, so much the better. A good plan will feature stocks, bonds, ETFs, and more. Most plans will offer ready-to-go retirement plans that have been designed by an investment professional, and some will offer the option for you to choose your own investments.

• How much income will you need each month during retirement?

This will help determine how much money you’ll need to save in order to meet those goals.

• What are your current savings/investment accounts worth?

Also consider how much interest they earn, as well as any other assets that may be available to use toward reaching your goals.

• Don’t forget about updates to contribution limits.

The IRS updates the amount you’re permitted to contribute to your retirement annually. Make sure you know what the maximum is so you can save as much as possible.

It’s never too late to start planning for your future. Try the Ubiquity 401(k) retirement calculator now!

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

How to use a Paycheck Calculator to Save For Retirement  

Siân Killingsworth / 17 Feb 2023 / 401(k) Resources, Personal Finance

It’s not always easy to figure out how much money you need to save for retirement. When your employer withholds money from your paychecks for federal and state taxes plus Social Security and Medicare, it can be difficult to know how much you can afford to put away for your future. And you may be hesitant to take money out of your paycheck that you may need for normal expenses like your mortgage or rent, food, childcare, etc.

That’s why we recommend using a paycheck calculator. It takes the guesswork out of figuring out how much you should be saving each month, and it helps put your exact income into context.

What is a paycheck calculator?

A paycheck calculator is an online, easy-to-use tool that helps you figure out how much money will be in your paycheck after various deductions, including retirement contributions. The tool will take several pieces of personal information into account:

• Your current salary
• The frequency at which you are paid (weekly, bi-monthly, etc.)
• Tax filing status (married, single, etc.)
• Other income sources such as earned interest
• Federal and state taxes
• Other deductions, such as health or dental insurance expense
• Current retirement contribution
• Proposed new retirement contribution

Why use a paycheck calculator?

A paycheck calculator is a tool that helps you understand your finances better so you can make informed decisions about your financial future. It identifies how much money will be in your paycheck after taxes and all other deductions.

It gives an accurate picture of what’s happening with your income and spending, which helps prevent nasty surprises when it comes time for an emergency or some other major expense. And finally, it can help you stay on top of planning for your retirement.

How much money do you need to save for retirement?

This totally depends on your retirement goals, your income, your savings, and the lifestyle you wish to have in retirement. Most employers do not offer pensions, and Social Security is dwindling, so your best course of action is to maximize your own retirement savings while you can.

Your annual 401(k) contribution is subject to maximum limits established by the IRS. For 2023, the maximum contribution for this type of plan is $22,500 per year for individuals under 50 and $30,000 for individuals 50 or older. Employer contributions do not count toward the IRS annual contribution limit, which is good news for those whose employers make these contributions.

Try Ubiquity’s Paycheck Calculator to see how increasing your 401(k) contribution will affect your paycheck amount – and your financial future. It will save you time and stress in the long run by eliminating guesswork.

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

How Much Do Companies Typically Match on 401(k) in 2023?

Siân Killingsworth / 28 Jan 2023 / 401(k) Resources, Personal Finance

Employer matching contributions are a common feature of many company 401(k) plans, with 98% of employers adding partial or full matching bonuses. The typical American company is matching 6% of employee contributions in 2023.

Employers are also increasingly recognizing the 401(k) employer match as a powerful incentive to encourage loyalty to the company; in 2022, 59% have vesting schedules ranging from one to six years before employees are entitled to walk away with the full amount of employer-matched funds.

If you own a small business or work for one, keeping tabs on what other companies are matching on their 401(k)s can help you gauge how competitive your own plan is and better adjust your contributions for the year.

Partial 401(k) Matches in 2023

In a partial match plan, the employer matches a smaller percentage of what employees contribute. A common partial match is 50 cents for every dollar of employee contribution, up to 6% of the employee’s salary. Even if employees opt to put in a greater amount – say 8% – the employer is still only responsible for putting in up to 6% in that case. So, for instance, a person earning $100,000 a year might contribute $6,000 and receive another $3,000 in partially matched funds.

Full 401(k) Matches in 2023

Full 401(k) matching means employers put in dollar-for-dollar what employees contribute, up to a set default rate or the IRS maximum. While 3% was the norm at one time, 65% of plans are now using a default rate higher than 3% in order to significantly boost savings for participants over time. In 2023, the most common default rate is now 6% of pay, according to the Plan Council Sponsor of America.

2023 Safe Harbor Matching Formulas

Safe Harbors are a popular type of 401(k) plan that allows businesses to bypass many of the annual IRS nondiscrimination testing requirements when they agree to a standard matching formula. Any employer contributions made in a Safe Harbor plan must be fully vested for all employees.

The most common Safe Harbor 401(k) matching formulas are:

• 100% match on the first 3% of employee contributions, plus 50% match on the next 3-5% (Basic match)
• 100% match on the first 4-6% of employee contributions (Enhanced match)
• At least 3% of employee pay, regardless of employee deferrals (Nonelective contribution)

401(k) Contribution Limits in 2023

Employees can put up to 100% of their compensation into a 401(k), up to the maximum limit. This year:

• Employees can contribute up to $22,500 (up $2,000 from 2022)
• Employees age 50 and older can add an additional $7,500 on top of this amount (up $1,000 from 2022)
• Employers can add $43,500 to their own 401(k), bringing the total balance up to $66,000 in 2022 (up $5,000 from 2021)

SIMPLE 401(k) Limits in 2023

Employers offering a SIMPLE 401(k) allow employees to save up to $15,000 in 2023, which is up by $500 from 2022. Those age 50 and older may contribute another $5,000 for a total of $19,000.

Employers can contribute dollar-for-dollar up to 3% of a worker’s pay or contribute a flat 2% of compensation regardless of the employee’s own contributions.

Employer 401(k) contributions are subject to an employee compensation cap of $330,000 for 2023.

Engage Employees and Encourage Them to Save With a 401(k) Match This Year

The employer match is an excellent incentive tool to encourage employees to participate in your small business 401(k) plan. Matching not only helps employees create better financial security, but allows you and higher-paid executives the opportunity to max out your retirement savings as well.

Ubiquity is a leading provider of 401(k) plans geared specifically to small businesses. We are happy to help you set up an easy and affordable small business retirement plan with matching and educate your workforce so they understand what a great and valuable benefit you’re offering. Contact us to learn more.

Should I Stop Contributing to My 401(k) When the Market Is Down?

Dylan Telerski / 5 Oct 2022 / Personal Finance

The news headlines may have you feeling financially defensive. It’s natural to feel nervous about 401(k) contributions, even though the current laws allow 401(k) contributors to borrow from their plans without penalty. But is your situation dire enough to warrant a reduction in savings for your future?

Signs You May Need to Pause Your 401(k) Contributions

Conventional wisdom dictates that you treat your retirement fund as a non-negotiable expense. However, many people are in a financial crunch. If you have no other alternatives and at least half these factors apply to you, a short-term pause may be enough to keep you afloat:

• Your income dropped, but your expenses didn’t go down. Sit down and look at your current spending and budget. Consider other ways of reducing expenses temporarily.
• You’re falling deeper into credit card debt. Credit card debt can snowball quickly with high interest rates. If you’re missing minimum payments, the penalties can add substantially onto what you owe. Some financial institutions offer debt relief programs and fee waivers to get you out of the crisis without impacting your 401(k).
• You’re very close to retirement. If you were planning to retire in the very near future, you may not want to add another year or two of work. Check to make sure you’re not overexposed to riskier equity investments. Instead of cutting your contributions, you may consider shifting over to less-risky investment choices like stocks and bonds.
• Your employer suspended matching contributions. Employer matching makes 401(k) savings particularly lucrative. If your employer has suspended matching contributions, it’s less expensive to halt your savings in favor of paying down debt with that money instead.
• You have no emergency fund and are at risk of losing your job outright. If you’re worried about losing your job, skipping a few paychecks’ worth of retirement savings can give you the cash reserves you need to temporarily pay for living expenses, should you suddenly lose your job.

Once you’re in recovery mode, consider doubling down on your contributions to catch up.

Reasons Not to Stop Contributing to Your 401(k) – And Maybe Ramping Up

Market volatility is troubling, but consider staying the course or even ramping up if:

• You have plenty of time until retirement. People in their 20s, 30s, 40s, and 50s have plenty of time to see a rebound and recoup any present losses.
• You want to maximize your portfolio. In fact, now might be the perfect time to load up on quality investments at rock bottom prices. Stocks are on sale. Shares are cheap. You may have had your eye on a few different investments, but the acquisition price was too high. Now many prices have come down on investments that can only go back up as the economy recovers.
• You like the idea of paying less in taxes this year. Remember, retirement savings lowers your tax liability. For most retirement plans, the money put in reduces the amount of income you’re taxed on, allowing your money to grow tax-free as well.
• You’re spending less. Right now, you may not be spending money on tickets for sports, concerts, movies, or museums. There’s no money spent at restaurants, shopping for clothes, or vacations. Without all these drains on your cash reserves, the timing has never been better to invest more into your retirement, allowing this money to mature and grow your nest egg.

What to Do If Your Employer Cuts Its 401(k) Match

During the last financial crisis, over 200 U.S. companies suspended or reduced their 401(k) matches, affecting 4.9% of all participants. Fortunately, three-quarters of companies reinstated their match within a couple of years.

The consequences can be painful for savers, though; just one year of missing $4,040 in employer match (the average contribution), assuming 7% returns over 30 years would result in $30,753 in lost earnings.

If your employer has cut their 401(k) match:

• Focus on damage control first. If you need money to put food on the table or keep a roof over your head, it’s okay to build your emergency cash reserves.
• If you can, boost your contributions. If your job is secure, consider increasing your contributions to make up for the missing match. You might also consider opening up an IRA in addition to your 401(k) to take advantage of more investment choices and lower fees.

The Bottom Line

A short-term dip shouldn’t affect your long-term savings goals. That said, it’s worth checking your account periodically to see if you should consider adjusting your strategy to better align with your unique goals and risk tolerance.

There is no substitute for a quick consultation with a professional financial advisor.

If you are interested in staying the course and starting or switching a 401(k) plan for small business, you can count on Ubiquity for affordable plans at a flat, fixed rate, with no AUM fees.

How to Talk About Retirement – Terminology Explained

Siân Killingsworth / 18 Apr 2022 / Advisors, Personal Finance

Retirement planning is a fairly specialized space within the larger arena of personal finance, so it isn’t surprising that there is a lot of industry lingo that might be unfamiliar. Below are some essential terms defined for your convenience.

401(k) Retirement Account

• Traditional 401(k): Business owners, including those who are self-employed, can start a 401(k) plan for themselves and their employees, if applicable. A 401(k) plan enables businesses to meet retirement planning and saving goals while taking advantage of business and personal tax benefits. With a Ubiquity 401(k) plan, retirement contributions can be either pre- or post-tax (Roth), with funds being deposited directly from an employee’s paycheck each pay period. Many companies also match a part of their employees’ contributions.
• Solo 401(k): This plan provides all the benefits of a big 401(k) plan, including maximum tax savings for self-employed individuals with no full-time employees other than the business owner and a spouse, if applicable.
• Roth 401(k): A hybrid between a Roth IRA and a 401(k) plan, earnings on after-tax contributions grow tax-free. However, the contribution limits in a Roth 401(k) are significantly higher than a Roth IRA — $20,500 ($27,000 if age 50 or older) in 2022, compared to $6,000 for a Roth IRA.

Company stock awards or stock options

Some companies include stock awards or options as part of the compensation package. These typically require an employee to hold the shares for a period of time before transferring or selling is permitted.

Individual Retirement Account (IRA)

• Traditional IRA: An IRA is a retirement savings vehicle that allows you to defer taxes on the earnings and growth of your savings until you need it in retirement. If you try to dip into these funds before age 59 ½, the IRS will impose a 10% early distribution tax penalty in addition to taxing the amount of the withdrawal at your current income tax rate. A traditional IRA has a required minimum distribution (RMD) starting at age 72. If you’re curious about weighing the benefits of a 401(k) vs an IRA, click here.
• Roth IRA: A Roth IRA is a retirement savings vehicle that allows employees to withdraw savings and distributions tax-free if certain requirements are met. Unlike a traditional IRA, contributions are not tax deductible, but the earnings on these Roth contributions still grow tax-free.
• Simplified Employee Pension (SEP) Plan: This is an individual retirement plan set up by employers in which only the employer contributes to employee accounts. Although it is available for any size business, it is often used by self-employed people. Contribution limits are higher than in a traditional IRA plan.
• Savings Incentive Match Plan for Employees (SIMPLE) IRA: This is a plan for small businesses that permits both employees and employers to contribute to retirement accounts. Easy for employers to set up and with no filing requirements, these plans must be the only retirement plan offered to employees.

Early Withdrawal Penalty

If you are under age 59 ½ when you withdraw from the account, the IRS may penalize you for up to 10% of the withdrawal amount when you file that year’s taxes.

Elective Deferrals

Amounts contributed to a plan by the employer at the employee’s election and, except to the extent they are designated Roth contributions, are excludable from the employee’s gross income.

Employee Contribution Limits

The total amount of money an employee may contribute to a retirement fund. In 2022, that limit for people age 49 and younger is $20,500. For those age 50 and older, the limit is $27,000.

Defined Contribution Plan

A retirement plan that’s typically tax-deferred, like a 401(k) in which employees contribute a fixed amount or a percentage of their paychecks in an account that is intended to fund their retirements. The employer will generally match a part of employee contributions as an added benefit to help keep and attract top talent. These plans place restrictions that control when and how each employee can withdraw from these accounts without penalties.

Distribution

The word the IRS and the financial industry use to talk about withdrawing money from an employer-sponsored retirement plan or any other tax-deferred retirement plan, like an IRA.

Hardship Withdrawal

Taking money from your account to help cover expenses during a hardship. The IRS defines eligible 401(k) hardships as “immediate and heavy financial needs.” These needs generally include medical care, tuition, emergency home repairs, funeral costs, and eviction prevention.

Matching Contributions

In a 401(k) plan, employers may contribute to an employee’s retirement account up to a certain amount as defined by a percentage or the IRS maximum.

Nondiscrimination Testing

The Internal Revenue Service requires these tests to ensure that employers are offering fair plans to all employees – not just the company owners, highly-compensated employees, and key individuals. Testing should happen annually at the end of the plan year, but proactive companies have their plan administrator conduct routine audits and conduct mid-year analysis to reduce the risk of failure.

Pension

Some employers offer pensions, which typically require the employee to work for the company for a set period of time before they qualify to receive the pension.

Plan Administrator

The plan administrator can be the employer, a company owner, a committee of key executives or board members, or, most commonly, a third-party partner. They set up and maintain the plan on a day-to-day basis. Ubiquity Retirement + Savings is a plan administrator.

Plan Sponsor

In addition to the owner of the company, the plan sponsor can also be a union, a group of representatives, or a key executive. Often, a plan sponsor is also referred to as a “fiduciary” – a person who takes legal responsibility for making decisions on behalf of plan participants. Fiduciaries agree to avoid conflicts of interest and work to keep fees reasonable. The fiduciary can also be held personally liable for plan losses caused by mismanagement.

Plan Provider

The company that creates, manages, and sells the retirement plan an employer selects. Ubiquity Retirement + Savings is a plan provider.

Profit-Sharing

A feature that can be added to a 401(k) plan to help employees save for retirement while allowing for maximum flexibility on how much the plan costs. Employers can decide from year to year whether they want to make contributions to employee plans depending on how much revenue the company earned that year. Even if employees themselves do not wish to take advantage of tax-deferred savings, they can still receive the profit share contribution. Compared to 401(k) matching contribution formulas, employers find a wider range of options with profit-sharing, though there may be limitations based on IRS nondiscrimination test rules.

Required Minimum Distributions

Also called an RMD, this is the smallest amount you must withdraw from your account each year. You generally must start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72.

Rollover

Moving funds from one retirement account to another. This is typically performed when an employee starts a new job in order to minimize the number of open accounts the employee owns.

Safe Harbor Plan

Each year, a 401(k) plan needs to pass nondiscrimination tests (see above) designed to prevent any unfair benefits to the company’s high-earning employees. If the 401(k) fails these tests, the business owner can move to a Safe Harbor 401(k) plan, which allows the plan to bypass these tests in exchange for additional contributions from the business owner. Additionally, with a Safe Harbor 401(k) plan, business owners and any highly compensated employees can maximize their contributions instead of being limited by the amount non-highly compensated employees contribute.

Vesting

• Standard vesting: Ownership by an employee of company funds or equity.
• Cliff vesting: The “cliff” is the time period after which vesting, or ownership, is permitted. For example, a one-year cliff means that employees are vested after a full year of employment.
• Graded vesting: Grants an employee ownership of employer contributions gradually over time.
• Immediate vesting: Grants an employee 100% ownership of any employer contributions to their retirement account.

If you’re ready to talk about setting up a retirement plan for your company, contact us today for a free consultation.

Traditional 401(k) vs. Roth 401(k)

Dylan Telerski / 12 Feb 2021 / 401(k) Resources, Personal Finance

You’re contributing to your workplace retirement account–that’s great! But how are you dealing with the taxes of the money you can contribute. There are two ways you put money into your 401(k) retirement plan– pretax or Roth.

Pretax contributions are the traditional form of 401(k). This means contributions come out of your paycheck before taxes, and are your distributions in retirement are taxed. This is useful if you’re earning more now than you plan to in retirement. Plus, you lower your taxable income in the present!

Think of the Roth 401(k) as the rebellious little sister of the pretax 401(k). Introduced in the early 2000s, it takes the tax treatment of a Roth IRA and applies it to your employer-sponsored plan. That means contributions come out of your paycheck before taxes, and distributions in retirement are tax-free. That means you don’t pay taxes on your investment growth!

Let’s look at the similarities (and differences) between the two retirement contribution types.

Learn more

Curious about different types of retirement accounts? Learn the difference between an Individual Retirement Account (IRA) and a 401(k).

If you’re a small business owner and need a 401(k) or Roth 401(k) plan for yourself and your company, only Ubiquity offers flat-fee plans plus free expert advice. We’ll fully customize your 401(k) to meet the specific needs of your small business.

Check out our cost-effective, plan solutions

Is It Always Best to Pay Off Credit Cards Before Saving for Retirement?

Dylan Telerski / 20 Feb 2020 / Personal Finance

Since 2007, America Saves Week has been an annual celebration as well as a call to action for everyday Americans to commit to saving successfully. To celebrate, we’re sharing a guest post from their contributor and executive editor of WiseBread Janet Alvarez, taking a closer look at how paying off debt and retirement can coexist.

Conventional wisdom says you should pay off your credit cards before saving for retirement. While it’s generally true you should pay off high-interest credit card debt as quickly as possible, there are a few situations where retirement savings should come first. Let’s look at the benefits of each approach.

Benefits of Paying Off Credit Cards First

Credit cards usually mean high-interest debt, and the longer you take to clear it, the more you’ll pay in interest. Here are some key reasons why you should pay off credit cards first:

• High-interest credit card debt can be hard to make a dent in. If you’re not making more than the minimum payment on your credit card, compounding interest means your balance will barely budge. Even if you never use the card again, you will end up making payments for a long time.
• If you’ve got credit card debt, your finances might be strained. High credit card debt is usually an indicator that you’re living above your means. You should get your spending and budget under control before investing in retirement.
• High-interest debt rates are usually higher than market returns. If your credit cards carry a 25 percent interest rate, but a retirement fund is likely to only earn about 8 percent per year in the market, that’s a whopping difference of 17 percent that you’d be missing out on by saving for retirement instead of paying down credit cards.

Benefits of Saving for Retirement While Paying Off Cards

Still, saving for retirement is critical, and there are several reasons why you might wish to do so even if it takes you longer to pay down high-interest cards. Among these are:

• 401(k)s and other retirement vehicles carry tax benefits. You can contribute to 401(k)s and certain other retirement plans using pre-tax dollars, thereby reducing your adjusted gross income and overall tax burden. This frees up extra cash for other purposes, such as credit card debt repayment.
• The earlier you start saving for retirement, the better. Delaying retirement savings means missing out on months or years of compound interest. The longer you wait, the more likely you’ll end up pinching pennies in your 50s as you try to catch up on retirement savings. Compounding interest allows even people who never make big salaries to end up with comfortable nest eggs—but only if they start saving early.
• Saving for retirement builds good financial habits. Socking money away for retirement is not only essential to your financial future, but it also helps you develop better money habits today. In doing so, you’ll learn how to budget better and address the sources of your debt. Plus, retirement accounts are usually difficult to raid (they often carry fees and penalties for early withdrawal). These extra hurdles discourage you from accessing this cash until you actually need it for retirement.

Special Situations May Help You Decide

Deciding whether to pay off credit cards or save for retirement first is a complex, personal issue. However, there are some special circumstances that suggest a clear direction:

• Your employer offers a 401(k) match. A retirement savings match is free money. Even if you have high-interest credit cards, save at least the minimum required to get your full employer match, or you’re leaving money on the table.
• Your credit cards have low-interest rates. If you’re able to carry or transfer your credit card debt on low or zero percent APR cards, then it makes sense to save for retirement while paying these off, since your low interest rates mean debt won’t snowball quickly—assuming you’re not making new purchases that add to existing debt.
• You’re age 50 or older. If you’re 50 or older, savings are critical because you’re that much closer to retirement, and have less time to save or allow money to compound. Plus, savers 50 or older are allowed extra catch-up contributions to their retirement plans.
• You’re buying a house or applying for credit. If you’re applying for a mortgage or other forms of credit in the foreseeable future, you’ll want your credit card balances low, and your credit score as high as possible.

Paying off credit card debt and saving for retirement are both important financial goals.

Often, they can even be achieved simultaneously. Regardless of which one you pick, commit today to setting aside extra cash each month to achieve your financial goal.

Janet Alvarez is the news anchor for WHYY/NPR and the Executive Editor of Wise Bread, an award-winning consumer education publication focused on helping consumers make smarter credit choices.

Disclaimer: Guest posts and comments represent the diversity of opinion within the financial world. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Ubiquity Retirement + Savings who shall not be held liable for any inaccuracies presented. 

Market Shifts + Your 401(k) Plan

Dylan Telerski / 2 Oct 2019 / Personal Finance, Ubiquity Insights

We spoke our partners, the investment professionals at Kaye Captial Management, to deep dive into retirement savings strategies for surviving the market’s ups and downs.

In general, how do market downturns impact 401(k) accounts?

Investing in the stock market comes with inherent risks, including market volatility. One key to mitigating these risks is to take a long-term approach to investing. Retirement plans, like 401(k)s, should be seen as long-term investments that can handle market downturns, especially for younger participants. Think about the mountain of a stock market graph—although there are fluctuations downward, the general trend is positive. As such, sit tight with market downturns, because a well-diversified portfolio should net a positive return over the long term.

For individuals closer to retirement, choose assets with less risk to maintain principal. Because you have a shorter time horizon, selecting lower risk assets may not generate a high yield, but should help you retire comfortably by preserving principal.

How should 401(k) investors react to market volatility?

Market fluctuations are part of the game when it comes to investing. If you are properly diversified and you are able to stomach the volatility, you will be better off in the long-term.

Participants who are not in target-date funds or models should rebalance their portfolios during market volatility to make sure their accounts have appropriate risk parameters.

How does market volatility impact retirement savers over 50, or those close to retirement?

Market volatility is more impactful for those over 50 because they have a shorter time horizon for investment than younger participants. However, those over 50 tend to know what it’s like to go through market fluctuations, so they understand that although the market can be is volatile short-term, investing for the long-term can contribute to the growth of your nest egg. A participant over 50 is better served to invest in less-risky assets to preserve their principal. By doing so, they mitigate the potential for a major crash just before retirement.

People close to retirement do not have the luxury of waiting out volatility. Older savers should look at their total portfolio risk exposure and decide if they are comfortable with the risks they are taking in their portfolios.

What steps should retirement savers take now to prepare for a potential market downturn?

Rebalance your portfolios, or ensure your investment third party accommodates automatic rebalancing, to ensure proper diversification to mitigate short-term market downturns. Modern portfolio theory dictates that diversifying your portfolio among asset classes allows for a much more consistent and stable return on investment. Rebalancing annually also ensures the participant that they are properly diversified.

Savers should consistently monitor their portfolios and rebalance them to the correct risk tolerance they believe is right for them. You cannot predict a market turndown, but you can prepare by ensuring your portfolio has the appropriate amount of risk for the return you expect.

Generally, how important a consideration is age when planning for retirement as part of a couple? Is this something couples tend to overlook?

Investing early, and often as a couple, can dramatically impact your success for retirement and is often overlooked at a young age. Compounding interest generated over time benefits those who save early and can put you well ahead of your peers, helping you retire on time.

More important than age is creating a financial plan and sticking to it. Understanding where your money is going on a daily basis and creating a plan for the future is necessary for success. Each person is different; some want to work until they are 70 while others want to retire at 60. Creating a plan and sticking to it will help couples identify the best time to retire.

This blog serves as information material from Kaye Capital Management (“KCM”) and does not serve as investment advice or recommendations by KCM or Ubiquity Retirement + Savings (“KCM”). Please remember that past investment performance is not be indicative of future results.  Different types of investments are associated with varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Kaye Capital Management (“KCM”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from KCM or Ubiquity.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Both Ubiquity and KCM are neither law firms nor certified public accounting firms and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the KCM’s current written disclosure Brochure discussing their independent advisory services and fees is available upon request. Ubiquity is not affiliated with any independent services you may solicit from KCM.

All About Financial Wellness

Dylan Telerski / 6 Jun 2019 / 401(k) Resources, Fiduciary Resources, Personal Finance, Ubiquity Insights

This week we were excited to announce the launch of CensiblyYours® Financial Wellness Tools, our newest innovation to help small business employers and employees make the most of their retirement plan and improve their overall financial health.

As part of our new suite of offerings, we’re providing participating savers access to Edukate, a fintech benefits platform that empowers employees through personalized financial education and guidance. So what exactly is financial wellness and how does it create a more productive, engaged workforce? We sat down with the experts at Edukate to discuss how investing in your employees’ financial well-being can set your business apart in the marketplace.

Define what financial wellness means to Edukate.

The concept of financial wellness can be a bit overwhelming as there are a number of definitions out there.

At Edukate, we believe financial wellness is the relationship between a person and their money.

A financially healthy employee is actively managing their day to day spending, is confident as to how they can protect themselves from future unexpected life events and is saving for their financial freedom.

How can companies adopt and promote financial wellness in 2019?

Open enrollment isn’t the only time you can make a difference in how your employees interact with their benefits.

Platforms like Edukate are breaking the mold of having to roll out benefits during open enrollment. The majority of Edukate’s plans are implemented outside of an open enrollment period.

When you’re looking for a financial wellness benefit, it’s important to find a platform that meets the specific needs of your organization.

For example, if employees aren’t participating in your 401(k), find out why. Employees may cite reasons such as not fully understanding the program or that they have other financial concerns they want to address first.

A strong financial wellness platform for your organization can educate users on how to use their 401(k) program and how they can tackle other debts or financial stressors to be able to start participating.

Typically, employees only hear about voluntary benefits right after launch or when they’re just starting at a company. To keep employees engaged, we recommend quarterly campaigns to ensure employees understand and feel empowered to use their benefits.

What are the key components to a company’s financial wellness program?

Like any benefit, a financial wellness program should be easy to access, administer, and use.

At Edukate, we focus on three key areas for success.

The first is employee engagement. Many employees never engage with their benefits because they’re boring and uninviting. By offering personalized guidance and interactive content, we’ve rethought employee engagement from the ground up.

The next is platform scalability. Edukate makes it easy to customize your employees’ experience, communicate with them, and get in-depth insights into how they are doing.

Lastly, is system integration. We are a one-stop benefits destination for employees by providing guidance for financial challenges and connecting them with the employer benefits that matter to them most— all while cultivating a culture of positive wellness.

Why is financial wellness important for employee retention?

There are plenty of statistics about how financial stress affects employee engagement and productivity.

When an employee is disengaged at work, the organization suffers. Lackluster productivity, absenteeism, and negative attitudes are common side effects.

When you offer benefits that employees need and want, they’re more likely to use them.

And if those benefits can help employees reduce their financial stress, productivity and engagement increases. When employees feel empowered by their benefits offerings, sentiments about their employer increase as well.

For some employees, this favorable perception of their employer drives loyalty to the organization.

The same survey also found that many employees would prefer more robust benefits offerings over an increase in salary.

Happy employees are productive employees.

How does achieving financial wellness work in tandem with saving for retirement?

Edukate’s approach to financial wellness is to help employees navigate every aspect of their financial lives, including managing their spending and saving habits, preparing for the future, and saving for retirement.

By helping employees address their financial stressors and feel more confident with their financial decisions, we believe that employees can better prepare for the future.

As employees learn about their personal finances, Edukate recommends existing employer benefits like retirement accounts to help them achieve their goals.

How does Edukate help promote financial wellness, and what inspired the company to pursue this mission?

Edukate was created with a belief that traditional retirement and financial education are broken and that there were better ways to help employees achieve their financial goals.

At Edukate, we empower employees to practice confident decision making to best utilize the benefits that matter to them most.

We accomplish this by offering an exceptional online platform that connects employees with education, tools, and benefits most relevant to their needs.

What has been the biggest barrier for small business to provide financial wellness benefits?

Even though financial wellness benefits can provide a positive return on investment, securing budget for a new benefits platform can be tough.

When working with small businesses, we work to find ways to rollout financial wellness in phases to different employee groups to give HR managers room to grow the program over time.

Why was a partnership with Ubiquity important to your company?

Partnering with Ubiquity offered Edukate a way to scale a financial wellness resource to smaller employers.

We recognize the need for small business owners to provide robust benefits to their employees. Nearly 90% of employees in the US work for employers with fewer than 20 employees.

Because retirement planning is one of the key focus areas of Edukate’s platform, partnering with Ubiquity helps us connect employees with the resources they need to fully prepare for retirement.

This blog serves as information material from Edukate and does not serve as investment advice or financial recommendations by Edukate or Ubiquity Retirement + Savings (“Ubiquity”). To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with and independent professional advisor.  Both Ubiquity and Edukate are neither law firms nor certified public accounting firms and no portion of the newsletter content should be construed as legal or accounting advice.