Imagine for a moment that your elderly mother slips and falls and breaks an arm and a leg. She is hospitalized and undergoes rehab — for 12 weeks. Most people think of chronic illnesses when they think of long-term care, but accidents can also trigger the need for extended nursing care, as well as physical and occupational therapy.
Employees may ask you for advice about how much of their income they should be saving for retirement, how much they should already have saved, and how much they will need. It’s never a good idea to give one-size-fits-all answers to these important questions, but it’s good that you’re interested in helping participants learn more.
It was a good year for individual account plans, including 401(k)s and 457s. In fact, 2017 may go in the record books as the first year the number of plans with an average auto-enrollment deferral rate of 6% exceeded the number of plans with a default deferral rate of 3%, as it has commonly been.
Looking for free financial advice? Money Smart Week, launched by the Federal Reserve Bank in 2002 for people of all income levels, is one of the most comprehensive financial literacy programs in the country. And it’s free! Get informed about saving for college, buying a house and using credit wisely.
Source: moneysmartweek.org.
Generational money habits – How did my grandparents manage their money?
One thing that has changed significantly over the past century is people’s attitude towards money and how they manage it. Do we learn these habits from our parents, or do we recognise their bad habits and implement change to ensure we don’t do the same thing?
When I was growing up, the phrase my parents constantly used was “We can’t afford it”; even today, when I hear those words it sets me off.
My poor husband has to deal with the onslaught of comments that come from me when he has to deliver the message that we need to “tone down our spending”. In all honesty, the overspending most of the time is down to me, but the fact that I have not been able to break the “can’t afford it” cycle infuriates me!
Many articles have been written about baby boomers spending everything before they die, or millennials being overwhelmed with student loan debt, but rarely do you read articles that describe exactly how different generations manage their money.
My 99-year-old grandfather is part of “the Greatest Generation”, people who were born between 1910 and 1924. It’s crazy to think my grandfather was actually born in 1919! However, what is almost incomprehensible is that in 1929, at the start of the Great Depression, my grandfather’s parents were both killed by a horse-drawn milk truck when he was only 10 years old. My grandfather was then raised by his older sisters and a spinster aunt, and even during the Great Depression his aunt, who was illiterate, made sure my grandfather went to school so he would not be.
I imagine the events of 1929 and later greatly influenced the person he became and certainly guided his choices and decisions on how he managed what he earned. Fast-track his life to 1969: he retired at age 50 and is still living a financially comfortable retirement 49 years on. Whatever he did, he certainly did it well!
One thing my grandfather was most proud of was the fact he never borrowed money, not even for his home. In fact, he has never borrowed from anyone or owed anyone anything. I can’t even imagine being able to buy a home without a mortgage – home ownership and a mortgage go hand in hand these days.
My grandfather told me that he saved 20 per cent of each pay cheque from day one because he wanted to make sure he could take care of himself and never have to rely on anyone financially.
Nowadays, the benefits of a company pension plan that requires both the employer’s and the employee’s contribution are pathing the way for our long-term retirement goals. Our grandparents, and even some of our parents, never profited from employee benefits, and although these are mandatory, they have been put in place to secure our financial future.
At the end of the day, if you look at money management through the generations, there are still binding principles that hold true: set aside money for your future and borrow as little as you can. The reality is, it doesn’t matter how much money you make if you can’t figure out how to manage it.
Taken from a column in bernews.com. Carla Seely is the Vice President of Pension and Investments at FM Group. If you would like any further details, please contact her at cseely@fmgroup.bm or call +1 441 297 8686.
Managed account: A managed account is a fee-based investment product for individuals that offers a high degree of customization by investment managers, along with certain tax efficiencies. A managed account often charges fees that are higher than mutual funds or exchange-traded funds (ETFs) to compensate the investment advisor for the higher degree of customization it offers, or for providing access to highly skilled investment managers.
Soon-to-be-retirees are sometimes unclear about how their finances will actually look in retirement. You may be offering them financial wellness information, but may also be wondering what you can learn from the Baby Boom generation’s actual retirement experience. That’s the exact topic of an Insured Retirement Institute (IRI) annual survey and report, now in its eighth year. While the survey indicates a generally positive financial picture for current Boomer retirees, many are not confident with their preparedness. Fifty-eight percent of Baby Boomers have retirement savings in 2018, up from 54% in 2017. Of the Boomers who have retirement savings, 43% have $250,000 or more, up from 32% last year. Still, just 25% of Boomers think their money will last throughout retirement, and 28% said they are doing (or did) a good job with their financial preparation for retirement. As far as who is doing the best job of preparing for retirement, the survey shows it’s those who work with a financial professional; these have at least $100,000 saved compared to 48% of those without a financial professional.
Read more from the IRI report, Boomer Expectations for Retirement 2018, here: https://tinyurl.com/IRonlineBoomers.
3RD QUARTER 2018
As an employer, you face a challenge: attracting and retaining the right talent is necessary to drive your business forward. At the same time, you likely feel a responsibility to help your employees achieve retirement financially prepared. Your 401(k) plan can help manage both of these goals.
Keeping an eye on the latest trends and tactics in the 401(k) arena is one way you can keep your plan competitive. Let’s take a peek into defined contribution plan design and activities across a wide variety of industries and company sizes, with data drawn from a recent survey.
In 2016, 84.9% of participants made contributions to their plans, up from 81.9% in the prior year. Lower-paid participants (as determined by the plan’s ADP test) contributed to their plan an average of 6.1% of their pre-tax pay. Higher-paid participants contributed more, at 7.0% of their pre-tax pay on average.
Company contributions have shown a relatively steady increase over time, since dropping to 3.5% of payroll in 2010. In 2015, company contributions amounted to 4.7% of payroll, rising to 4.8% in 2016.1 Just 5.6% of companies participating in the survey did not make contributions to the plan, 82% made matching contributions and 45.4% made non-matching contributions. For companies whose match is a fixed percentage, 41.3% match $.50 for each dollar contributed by the participant, up to the first 6% of pay. A further 31.8% of these employers match participant deferrals dollar-for-dollar up to 6% of pay.
Just where is the money going? Plans continue to offer between 17 and 19 investment options for company contributions, and between 18 and 20 for participant contributions, figures which have remained relatively steady for the last 10 years. Most frequently, assets in 2016 were invested in actively managed domestic equity funds, with 22.9% of assets directed there. Target-date funds (TDFs) were the investment of choice for 22.2% of assets, followed by indexed domestic equity funds at 13.5% and stable value funds with 8.1% of assets.
Almost 40% of the surveyed plans offered a professionally managed portfolio to participants. Seventy percent of plans use a Qualified Default Investment Alternative, or QDIA, which for 77.5% of them is a TDF.
Target-date funds continue to increase in both availability and usage. Compared to 2007, availability of TDFs rose from 44.4%, reaching 73.1% in 2016. Average allocation was just 6.4% in 2007, compared to 22.2% by 2016.1
You can read more about 2016 trends in defined contribution plan in the PSCA’s Annual Survey of Profit Sharing and 401(k) Plans, 60th Annual Survey. Available for purchase online at psca.org.
1 Figures include 401(k) plans and profit sharing plans of surveyed employers.
September Checklist:
• Begin preparing the applicable safe harbor notices to employees, and plan for distribution of the notices between October 2 and December 2 (calendar-year plans).
• Distribute the plan’s Summary Annual Report by September 30 to participants and beneficiaries, unless an extension of time to file Form 5500 applies (calendar- year plans).
• Send a reminder memo or email to all employees to encourage them to review and update, if necessary, their beneficiary designations for all benefit plans.
As featured Bernews.com.
In our home, July marks our ‘check-in’ chats: discussions on any travel plans for the remainder of the year, whether we should upgrade any furniture or get a newer car, and so on. But our biggest and sometimes most ‘heated’ chat is regarding the semi-annual review of our finances and update of our ‘net worth statement’.
