Common 401k Missed Opportunities

The average American with a job and a child spends 8 hours working, 2.44 hours on household activities, 2.08 hours caring for a child, 1.25 hours eating, and around 9 hours sleeping or resting daily, which does not leave much time.

Needless to say, employees today are busy and overwhelmed. A more startling statistic is that only 29.5% of people socialize daily. That being said, people are overburdened and do not have the time to understand their 401(k). Naturally, this opens them up to many mistakes within their 401(k).

What are some of the common mistakes employees make with their 401(k) plan?

There are three of the most common mistakes that employees make when it comes to their 401(k) plans. All of these missteps can lead to there being less funds in their 401k at retirement.

• Employees are withdrawing funds before retirement age.
  • Often, employees find themselves in debt and borrow from the 401(k) to pay down debt.
  • Another withdrawal is when employees change careers and move businesses. They are regularly cashing out during a rollover instead of leaving the funds invested and rolled over into a new plan.
• Contributing has a significant impact on retirement savings. Many employees are unaware of how and how much they contribute to their plan. They are either:
  • Not contributing enough funds.
  • Not contributing early enough.
  • Employees are missing out on the employer match because they are failing to make the minimum contributions necessary to take advantage of employers’ matching incentives.
• Investing in the appropriate funds is the next step to potentially maximizing retirement savings. Many employees make common mistakes that reduce their savings opportunities.
  • Leaving money in cash is one of the most straightforward issues. If the money is not invested in the market, there is no opportunity for growth.
  • Not Diversifying investments could lead to added unnecessary exposure. A well-diversified investment portfolio is generally a best practice for those looking to optimize their long-term investment opportunities while decreasing their risk.
  • Today, many retirement plans offer tax-advantaged options. Understanding the tax implications of Roth vs. Pre-tax within the retirement plan is essential to optimize retirement funds from a tax perspective.

How to help your employees not fall for these common mistakes?

Employers and Employees agree that retirement savings are important and having the opportunity to save within an employer 401(k) is one of the best ways to do so. 81% of employees believe that retirement savings and planning benefits are an important employee benefit. But with all the common mistakes that employees are making its hard to imagine a future in which employees are able to retire on time. As an employer, you must be open to new ideas that can help our employees save more. Here are a few simple solutions that can help optimize your plan to assist your employees and decrease the opportunities for mistakes.

1. Financial Education Programs — Offering a financial education program can help increase your employees’ financial literacy. Credit counseling and budgeting tools can help your employees understand how to pay down or stay out of debt.
2. Automatic Features — Automatic features within a plan, such as automatic enrollment, re-enrollment, and escalation, are great ways to relieve employees’ pressure. With automatic features, you are setting up actions that will take place automatically and can function without a great deal of input from the employee.
3. Communication — Clear communication on plan details, updates, and changes is vital. Keeping your employees aware of all the updates and changes to the plan is also vital. Many employers offer an employee portal that allows individual employees who are interested in more information to seek that information on their own.
4. Employer Matching — An employer match incentivizes employees to save more because each percentage they save they will equate to more money saved. One popular strategy is incentive matching or stretch match, such as a 50% match up to 6%. This type of employer match encourages the employee to contribute a higher percentage.

A combination of plan design and education can go a long way toward helping your employees achieve their financial goals. As stewards of your business’s retirement plan, it is important to be open to new ideas and not settle for the status quo. The current status quo has led to around 19% of American’s aged 65 or older are still in the workforce. Many because they have not saved enough to retire. The mistakes they made earlier in their career, such as taking withdrawals from their 401(k) or not contributing enough, are some of the leading reasons for this outcome. As employers, it is our duty to evaluate our plan to see if we are doing everything we can to help set up our employees for success. A retirement plan is not a set-it-and-forget-it; there are always ways that they can be optimized for your workforce.

If you are interested in helping your employees save more for retirement and avoid falling for these common 401(k) pitfalls, reach out to one of our OneDigital Retirement Plan Advisers today!

Investment advice offered through OneDigital Investment Advisors LLC.