I noticed Scott Burns’ column in today’s Houston Chronicle (you can read the article here) is the first in a series on reforming retirement saving. This particular article talks about the fact that many employers are no longer offering their employees a 401(k) match. Scott references a study done by Hewitt Associates that states that a one-year suspension in the employer match can cost a young employee (earning $50,000 per year) $16,000 in future retirement benefits. I think this is unfortunate.
This finding from Scott’s piece reminds me of what I pointed out about the 2009 Fortune 500:
In the 12 months ending Feb. 28, only 12 companies in the Standard & Poor’s 500 provided a positive return. Over 200 companies lost at least half their value.
Finally, this last part regarding how fees can really eat into retirement plans, is telling:
All other things being equal— gross return and career contributions — a federal government worker with a virtually cost-free plan who starts saving 6 percent of income at age 30 will accumulate about 10.5 years of final income by age 67.
A private-sector worker with a typical plan will accumulate only 8.5 years of final income by the same age, if the plan has costs of 1 percent a year.
A worker with a plan that costs 2 percent a year will accumulate only 7 years of final income by age 67.
Those are big differences. Put another way, 2 to 3.5 years of income are siphoned off by the costs of typical plans.
I have a feeling that changes are coming… Let’s hope they are for the better and not some kind of socialist program.
I still think education and SELF-DISCIPLINE are the keys. Employees need to understand just what they are giving up when they elect not to sign up for their 401(k). They need to be updated once a year with something that says, “This is what you could have in your account had you signed up.” Of course, this may do nothing more than lull people into doing nothing since they already feel like they missed out.
I’ll try to highlight the other five articles in the series as they become available.