MONEY 401(k)s

Workers Spend More Time Researching Cars Than Checking Out 401(k) Options

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Dimitri Vervitsiotis—Getty Images

Investors understand that retirement plans are important. But judging by time spent, 401(k)s are don't rate nearly as high as a new SUV.

When it comes to retirement saving, Americans still have their priorities skewed. That’s the conclusion of a new Charles Schwab survey, which found that workers spend more time investigating options for buying a new car or planning a vacation than researching the investment choices in their retirement plan. Cars and vacations got two hours of effort compared with one hour for 401(k)s.

It’s not that workers don’t value their retirement plans. Nearly 90% of workers say that a 401(k) is the most important option an employer can offer, the survey finds. But for most workers, appreciation of the plan isn’t translating into doing the best job possible of managing it. “It’s just human nature. We tend to gravitate to things we are comfortable with and avoid the things that we are not,” says Steve Anderson, president of Schwab Retirement Plan Services.

Part of the problem may be lack of financial knowledge. Workers surveyed by Schwab say they’d feel more confident about the ability to make a good financial decision if they had some professional guidance. Yet few people seek out help. Fewer than 25% participants who have access to professional advice have used it, according to the survey. By contrast, 87% of workers said they would hire a professional to change the oil in their car and 36% rely on one to do their taxes.

Of course, outsourcing your taxes and car maintenance isn’t the same as finding good investment help. But it’s not that the advice isn’t there. Three-quarters of 401(k) plans offer some type of help, ranging from from target-date funds to online tools to professionally managed accounts. Anderson said one reason people may not seek out help is that they don’t know it’s available. “Advice is available but it’s not promoted,” he says.

Taking advantage of this guidance can pay off, especially when it comes to reducing risk.

According to a study released by Financial Engines earlier this year, people who got professional investment help through managed accounts, target-date funds or online tools earned higher median annual returns than those who go it alone. It found that on average, employees getting advice had median annual returns that were 3.32 percentage points higher, net of fees, than workers managing their own retirement accounts.

Meanwhile, Schwab also found that people who used third-party professional advisors and had one-on-one counseling tended to increase their savings rate, were better diversified and stayed the course in their investing decisions despite market ups and downs.

If you are looking for plan guidance, though, make sure you understand the fees for this advice. A recent study by the GAO found that managed accounts, which let you turn over portfolio decisions to a pro, may be costly—management fees ranged from .08% to as high as 1%, on top of investing expenses. Ideally, you should pay 0.3% or less. High fees could wipe out the advantage of professional guidance. Other research has found that you may get similar benefits—generally at a much lower cost—by opting for a target-date fund.

In the long run, stepping up your saving and keeping fees low will make a bigger difference to your financial security than the investments you select. Still, making the right choices in your 401(k), as well as understanding what you need to do to reach your goals, is important. If professional advice will help you avoid making mistakes, it may be worth seeking out.

MONEY College

The Important Talk Parents Are Not Having With Their Kids

College tuition jar
Alamy

The new Fidelity College Savings Indicator survey reveals that parents are only on track to pay a third of college tuition—and that they're keeping mum on the topic.

Moms and dads expect their children to pay for more than one-third of college costs—but only 57% of parents actually have that conversation with their kids, according to a new study out by Fidelity today.

The cost of college has more than doubled in the past decade, and parents are having a hard time saving for it, Fidelity’s 8th annual College Savings Indicator study shows. While 64% of parents say they’d like be able to cover their kids total college costs, only 28% are on track to do so.

That jibes with reality: For current students, parents’ income and savings now only cover one-third of college costs on average, according to Sallie Mae’s recently released report How America Pays For College. Kids use 12% of their own savings and income. Loans taken by students and parents account for 22% of the funds, while another 30% comes from grants and scholarships.

Experts urge parents to have a frank conversation well in advance with their children about how much college costs and how much they are expected to contribute, either through summer jobs, their own savings or part-time jobs while in school. “If children know that they are expected to contribute to their college funds, they are more likely to save for it,” says Judith Ward, a senior financial planner at T. Rowe Price.

A T. Rowe Price study released earlier this week found that 58% of kids whose parents frequently talk to them about saving for college put away money for that goal vs. just 23% who don’t talk to their parents about how to pay for school.

There’s also reason to believe that parents shouldn’t feel so bad about not being able to take on the full tab. A national study out last year found that the more money parents pay for their kids’ college educations, the worse their kids tend to perform. In her paper “More Is More or More is Less? Parent Financial Investments During College,” University of California sociology professor Laura Hamilton found that larger contributions from parents are linked to lower grades among students.

Apparently, kids who don’t work or otherwise use their own money to pay for school spend more time on leisure activities and are less focused on studying. It’s not that these kids flunk out, according to Hamilton. She found that students with parental funding often perform well enough to stay in school, but they just dial down their academic efforts.

Given all these findings, parents should feel less pressure pay the full ride for their kids—especially if it means falling behind on other important goals like saving for their own retirement. “Putting your kids on the hook for college costs is better for everyone,” says Ward.

MONEY 101: How much does college actually cost?

MONEY 101: Where should I save for college?

MONEY Ask the Expert

Here’s How to Protect Your 401(k) from the Next Big Market Drop

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Robert A. Di Ieso, Jr.

Q: Bull markets don’t last forever. How can I protect my 401(k) if there’s another big downturn soon?

A: After a five-year tear, the bull market is starting to look a bit tired, so it’s understandable that you may be be nervous about a possible downturn. But any changes in your 401(k) should be geared mainly to the years you have until retirement rather than potential stock market moves.

The current bull market may indeed be in its last phase and returns going forward are likely to be more modest. Still, occasional stomach-churning downturns are just the nature of the investing game, says Tim Golas, a partner at Spurstone Executive Wealth Solutions. “I don’t see anything like the 2008 crisis on the horizon, but it wouldn’t surprise me to see a lot more volatility in the markets,” says Golas.

That may feel uncomfortable. But don’t look at an increase in market risk as a key reason to cut back your exposure to stocks. “If you leave the market during tough times and get really conservative with long-term investments, you can miss a lot of gains,” says Golas.

A better way to determine the size of your stock allocation is to use your age, projected retirement date, as well as your risk tolerance as a guide. If you are in your 20s and 30s and have many years till retirement, the long-term growth potential of stocks will outweigh their risks, so your retirement assets should be concentrated in stocks, not bonds. If you have 30 or 40 years till retirement you can keep as much as 80% of your 401(k) in equities and 20% in bonds, financial advisers say.

If you’re uncomfortable with big market swings, you can do fine with a smaller allocation to stocks. But for most investors, it’s best to keep at least a 50% to 60% equities, since you’ll need that growth in your nest egg. As you get older and closer to retirement, it makes sense to trade some of that potential growth in stocks for stability. After all, you want to be sure that money is available when you need it. So over time you should reduce the percentage of your assets invested in stocks and boost the amount in bonds to help preserve your portfolio.

To determine how much you should have in stocks vs. bonds, financial planners recommend this standard rule of thumb: Subtract your age from 110. Using this measure, a 40-year old would keep 70% of their retirement funds in stocks. Of course, you can fine-tune the percentage to suit your strategy.

When you’re within five or 10 years of retirement, you should focus on reducing risk in your portfolio. An asset allocation of 50% stocks and 50% stocks should provide the stability you need while still providing enough growth to outpace inflation during your retirement years.

Once you have your strategy set, try to ignore daily market moves and stay on course. “You shouldn’t apply short-term thinking to long-term assets,” says Golas.

For more on retirement investing:

Money’s Ultimate Guide to Retirement

MONEY office etiquette

3 No-Fail Ways to Handle a Coworker Who’s Too Loud

Businessman plugging his ears
Anthony Lee—Getty Images

Q: My colleague makes loud personal phone calls all the time. I work in an open office and sit right next to him. How can I get him to be more quiet without creating an awkward situation?

A: Dealing with noisy neighbors is one of the many curses of working in an open office space. (You’re also more likely to get sick and be less productive).

Nearly 70% of offices now have open layouts, according to the International Facility Management Association; plus the average square footage per person has dropped from 225 to 176 between 2010 and 2012—and is expected to fall to 100 by 2017, according to corporate real estate association Corenet. So some ambient noise is to be expected.

But being cozied up to your colleague doesn’t mean you have to settle for an earful of his high-volume personal calls.

You’ve got a few options for how to resolve the issue.

Ideally, a professional and polite conversation with your co-worker will solve the problem. “Sometimes it’s just an awareness issue,” says Bill Driscoll of staffing agency Accountemps. “Your coworker may not realize that everyone can hear their personal business.”

But if you don’t want to say something directly, ask your manager to speak to him. Rather than ratting out your colleague for doing personal business on work time, says Driscoll, simply tell your boss that the loud talking is distracting you from doing your job. Your boss should be empathetic when you pitch it in terms of the impact on the results you are able to deliver.

A final option is to ask your manager if you can move your desk to a quieter place in the office, with no naming of names.

Whatever you try, keep this in mind: “We spend almost as much time at work as we do at home,” says Driscoll. “This isn’t something you should have to live with.”

MONEY pay raise

5 Ways to Get a Big Raise Now

Envelope With a Money. Image shot 03/2013. Exact date unknown.
Alamy

The best salary bumps go to the most valued workers. Here’s how to make sure you’re one of them.

All signs point to a rapidly improving job market, giving workers the upper hand over employers when it comes to getting a decent pay increase.

“The economy is heating up, and employment is improving. Employees should have more leverage and more confidence to ask for more,” says Bill Driscoll of staffing firm Accountemps.

It’s about time. While pay increases have steadily been rising since the end of the recession, the gains have been modest. Mercer is projecting an average pay raise of 3% for workers in 2015. That’s up from 2.9% this year, 2.8% in 2013 and 2.7% in 2012.

But for top performing and highly skilled workers, the pay bumps are much plumper.

Mercer’s survey shows the highest-performing employees received average base pay increases of 4.8% in 2014 compared with 2.6% for average performers and 0.1% for the lowest performers.

“Differentiating salary increases based on performance has become the norm,” according to Rebecca Adractas, a principal in Mercer’s Rewards consulting business. “It’s an effective way for employers to recognize top performers without increasing budgets dramatically.”

Here are five ways you can snag a better-than-average raise.

1. Gather your accolades. You know you’re good at what you do, but when clients, customers and respected colleagues say so, that carries weight with higher-ups. Collect emails of praise from your boss, ask customers or clients to write testimonials for your work, and get feedback from your manager after completing projects.

2. Prove you’re a top performer. There’s nothing like a number to show you are delivering on the job. Quantify your accomplishments. Sure, that’s easier if you’re in sales and you can show you’ve more than hit your targets or landed a big account. Did you implement more efficient ways to get things done, cut costs to meet budgets, take on additional responsibilities above and beyond your normal job duties? Those count too.

3. Know what to ask for. Are other people at your firm getting raises? How is your company doing? Is it hiring people or laying them off? Even companies cutting back don’t want to lose experienced employees. That doesn’t mean you’ll get a raise, but it will help if your request is grounded in reality.

It’s also important to know how you stack up against others in your position. If you’ve been at your company a long time, you may not be making as much as recent hires. Use tools such as PayScale.com’s salary calculator to research compensation by experience level, company size, and the city where you work. You can also talk to colleagues or even co-workers who have recently left your company about how much people make in your position. It’s still taboo to talk about salary, but if you ask for ranges, it’ll be an easier discussion to have.

4. Ask. Seems like the obvious place to start, but 56% of workers have never asked for a raise, according to a recent CareerBuilder survey. Sure, it can be an uncomfortable conversation, but this stat from the survey should give you courage: Two-thirds of workers who asked for a raise received one.

And now is a good time to have the conversation. Companies draw up their budgets for the next year in the fall, beginning in September. Wait till December to talk with your boss and it may be too late.

5. Don’t take no for an answer. If your manager isn’t willing to give you the pay bump you’re looking for, ask what you can do to get it down the road. Take notes and set a time to follow up. After the meeting, send an email thanking your boss for talking with you and summarize what you discussed so you have in writing what was laid out.

If a bigger than average pay increase isn’t in the cards because budgets are tight, consider other perks that you’d value. “Smart companies are retaining their talent in a myriad of ways besides salary increases,” says Driscoll. That includes one-time bonuses, working a flexible schedule, additional vacation days, telecommuting, covering more of the cost of health benefits, a richer 401(k) contribution, even cell phone reimbursement. “There are other ways to increase your salary without getting a pay raise,” he says.

Related:
7 Reasons It’s a Great Time to Ask for a Raise

MONEY 401(k)s

Ignore This Savings Plan at Your Peril

Workers often think signing up for their 401(k) is all they need to do. But millions fail to enroll right away or raise their contributions, and they'll pay a heavy price.

Call them victims of inertia. These are folks who are slow to sign up for their employer-sponsored savings plan or who, once enrolled, don’t check back for years. Their numbers are legion, and new research paints a grim picture for their financial future.

More than a third of 401(k) plan participants have never raised the percentage of their salary that they contribute to their plan, and another 26% have not made such a change in more than a year, asset manager TIAA-CREF found. The typical saver stashes away just 8% of income—about half what financial planners recommend. Without escalating contributions, these workers will never save enough.

More than half of plan participants have not changed the way their money is invested in more than a year—including a quarter that have never changed investments, the research shows. This suggests many are not rebalancing yearly, as is generally advised, and that many others are not paying attention to their changing risk profile as they age.

At companies without automatic enrollment, a quarter of workers fail to enroll in their 401(k) for at least a year and a third wait at least six months, TIAA-CREF found. These delays may not seem like a big deal. But the lost returns over a lifetime of growth add up. Based on annual average returns of 6% and a like contribution rate over 30 years, a worker who enrolls immediately will accumulate nearly double that of a worker who starts two years later. Even a mere six-month delay is the difference between, say, $100,000 and $94,000, according to the research.

Employer-sponsored 401(k) and similar plans have emerged as most people’s primary retirement savings accounts: 42% of workers say it is their only savings pool and a similar percentage say the plans are so critical they would take a pay cut to get a higher company match, according to a Fidelity survey. So any level of mismanagement is troublesome.

There is a bright spot, however—younger workers have been quicker to catch on. Millennials are the most likely group to boost their percentage contribution after each pay raise, and among millennials who do not boost the percentage, 23% say it is because they already contribute the maximum. Millennials are also most likely to check back in and adjust their investment mix.

That’s not entirely good news. In general, millennials are not investing enough in stocks, which have the highest long-term growth potential. But it reinforces the emerging picture of a generation that understands what Baby Boomers and Gen Xers were slow to grasp: financial security is not a birthright. Millennials will need to save early and often—on their own—and pay attention for 30 or 40 years to enjoy a happy ending.

MONEY Ask the Expert

Here’s One Good Reason To Borrow From Your 401(k)

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Robert A. Di Ieso, Jr.

Q: Should I use my 401(k) for a down payment on a house?

A: Let’s start with the obvious. It’s rarely a good idea to borrow from your retirement plan.

One major drawback is that you’ll give up the returns that the money could have earned during the years you’re repaying the loan. Your home isn’t likely to give you the same investment return, and it’s difficult to tap real estate for income in retirement. There’s also a risk that you’ll lose your job, which would require you to pay back the loan, typically within 60 days, though home loans may have a longer repayment period.

Still, 401(k) borrowing has undeniable advantages. For starters, “they’re easy loans to get,” says Atlanta financial planner Lee Baker. You don’t have to meet financial qualifications to borrow, and you can get the money quickly. Interest rates for these loans are generally low—typically a percentage point or so above prime, which was recently 3.25%. Another big plus is that you pay yourself back, since the rules generally require you to fully repay within five years; 10 years if you buy a house. (Otherwise, the amount will be taxable, plus you will pay a penalty if you’re under 59 1/2.) So you eventually do replace the money with interest. Be aware, most plans limit your borrowing to $50,000 or 50% of your account balance, whichever is less.

Given how easy it is to get a 401(k) loan, it’s no wonder many workers tap their plans for home buying, especially Millennials. About 10% of home buyers borrow from their 401(k) and another 4% use funds from IRAs, according to the National Association of Realtors. And overall some 17% of Millennials report borrowing from their company plan, according to a 2014 Ameriprise study, Financial Tradeoffs. “It is where they have accumulated most of their savings,” says Baker.

All that said, when it comes to buying a home, a 401(k) loan can make sense. If you can put together enough cash for a 20% down payment, you may able to avoid avoid mortgage insurance, which can your lower monthly bill. And with interest rates still low, having a down payment now can enable you lock in a good rate compared with waiting till you have more money when mortgage rates may be higher.

If you go this route, though, take a close look at your financial resources both inside and outside your plan. Will you have to tap all your savings, leaving you vulnerable if you have a financial emergency? Do you have enough cash flow to meet your monthly payment and pay the loan? Is your job relatively secure or do you have to worry about a layoff that will trigger the automatic repayment provision?

And if you borrow, don’t forget to keep saving. A common mistake people make is halting regular contributions during the pay back period, which puts you further behind your retirement goals. At the very least, says Baker, contribute enough to get your employer match.

More on Home Buying:

Should I Pay Off Loans or Save for a Down Payment?

Single and Thinking of Buying a Home? Here’s Some Advice

“At 27, I’m the First of My Friends to Own a Home:” A Buyer’s Story

MONEY 401(k)s

Why Workers Would Take a Pay Cut for This Retirement Benefit

Image Source—Getty Images

A 401(k) employer match is so valuable that many workers would be willing to lower their pay to get a bigger one, a survey finds.

Would you willingly take a pay cut? A surprising number of workers say yes—if it means getting a richer 401(k) match.

That’s one of the findings from a Fidelity Investments survey released today. When workers were asked if they’d prefer to have lower compensation in return for a higher 401(k) employer contribution, 43% chose the pay cut. As the responses show, many workers realize that it would be worthwhile to accept “a short-term pay cut for a long-term payoff,” says Fidelity vice president Jeanne Thompson.

The results also show that more people are worried about achieving a financially secure retirement, which seems increasingly out of reach. For many workers, a 401(k) plan is their sole means for saving for retirement, while an employer match is the closest thing to a free lunch that you can get. But a 401(k) match is more than a nice fringe benefit—depending on your ability to save, it may even make or break your retirement.

Why is a 401(k) match so crucial to retirement success? Consider that most workers need to put away 10% to 15% of salary in their plan to be on track to a comfortable retirement, financial advisers say. But the typical saver stashes away only 8%. So to get to that 10% or higher savings rate, the average worker needs a boost from a company match. Overall, employer matches account for more than 35% of total contributions to the average worker’s 401(k) account.

That brings up one bright spot in the survey: The typical employer match is now 4.3% of pay, which comes to an average of $3,450 per worker a year. That’s a jump of more than $1,000 compared with the average employer contribution 10 years ago.

There are good reasons for employers to offer tempting 401(k) matches. Companies can deduct the contributions from their corporate taxes, and the benefit is a valuable tool for attracting talent and retaining employees, especially as the job market improves. Only 13% of workers surveyed said they’d take a job with no company match, even if it came with higher pay.

Of course, the fact that Fidelity is asking workers to choose between a match and pay cut is another stark reminder that Americans are largely on their own when it comes to saving for retirement. “Many people used to have a pension plan. That’s not true for younger workers today, and even many Baby Boomers who had pension plans have had them frozen,” says Thompson.

If your 401(k) lacks a generous match, it’s crucial to step up your own savings. One relatively painless way to do it is start with a 1% increase in your savings rate. For each $33 reduction in your take-home pay, you will add $220 to $330 to your future retirement income. (To see how different savings rates will boost your nest egg, try this retirement income calculator.) At the very least, save enough to get your full 401(k) match.

MONEY Careers

How to Stop Your Coworkers’ Most Annoying Habit

Man on smartphone in the middle of meeting
Image Source—Alamy

Q: My team was giving a presentation recently, and half the people in the room were checking their cell phones or texting at some point—even my boss. This happens all the time. What can I do to get people to pay attention?!

A: You can’t control everyone, but by setting expectations up front, you’ll at least get more people to keep their eyeballs on you.

If it’s going to be a long meeting—say a two-hour presentation—let people know that there will be a 10 to 15 minute break during which they can check in with their offices or catch up on email, says Rachel Wagner, a corporate etiquette consultant and trainer. If the meeting will be short, say so, and let the people know that, in order to be as efficient as possible, you’ll need their full attention for 30 minutes.

“Most people don’t intend to be rude, but in today’s workplace they are wired to compulsively check their phones,” says Wagner. “If people know they won’t be trapped for hours, they’re less likely to check every few minutes.”

Also, be strategic about how you set up the room. “The closer people are to the presenter, the less comfortable they’ll be checking their phones,” says Wagner. Arrange the seating in a U-shape so more people are closer to the front. And if it’s a big audience, use a wireless microphone so you can walk around.

Even proximity to other people may deter smart phone use, says Wagner. “Get a good headcount, and don’t leave room for extra chairs,” she advises. “If there’s a big gap in spacing, people can hide in the back.”

If it’s any comfort, you’re not the only one irked by smart phone addicts. A recent survey by the University of Southern California’s Marshall School of Business found that 76% of working professionals think it’s inappropriate to read or write texts or email during a meeting.

That’s good reason to make sure you practice what you preach—and put your own phone down when someone else is doing the talking.

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