Is retirement going to be available for millennials through 401k?
I've heard a lot rumors about companies getting rid of 401k. Therefore forcing employees to do retirement plans on there own but, it will be be hard to do if a person doesn't make a lot of money.
#retirement #financial-planning #millennials
Sergio G’s Answer
401(k) plans are a type of retirement plan that is set up by employers and allows employees to elect to make contributions. Some employers also make contributions on behalf of employees. You must decide how your retirement plan is invested. The rate of return is not guaranteed and your account may loose value, but still a retirement plan is your best option to save for retirement and you should make contributions as early as possible.
401(k)'s are not going away. You may be thinking of social security retirement benefits; that source of retirement benefits is dwindling and could run out of money in the future. But 401(k) money that you contribute is ALWAYS yours. The only way you can lose it is if the investments you allocate it into go down in value. Sometimes employers will give you money toward your 401(k) (called a match: they'll match a percentage of what you contribute). Even if you leave your employer, you can take that money & put it in your next employer's 401(k) plan, or open your own IRA account somewhere, & put the money in there. But absolutely participate in a 401(k) if there's one available where you work.
Just FYI, the money an employer "matches" takes a certain amount of time to become yours totally. That's called "vesting." But when that time has passed & the employer contribution has vested, that is your money, too, & the employer can't keep it if you leave. It's yours.
Hey Charles B. Most companies are establishing 401k, 403b and similar plans. 401k plans and similar plans are called Defined Contribution Plans. Defined Contribution Plans are what most employers are transitioning too, they are a lower cost to the company than Defined Benefit plans, or pensions. With Defined Contribution plans the employees designate a portion of their income toward their retirement. Some experts suggest 10%-15% or to at least match the maximum employer contribution. The employer matches up to a certain percentage, typically I've seen 3%-6% from the employer. Defined Benefit plans can be costly and are being phased out by companies in an effort to establish a Defined Contribution Plan.
LaTonya M’s Answer
I hope this answer is helpful. But please don't get hung up on which tool to use for saving. 90% of the challenge of investing is learning how to spend less than you make. That's the hard part most people cannot do. Focus on that, and you will be way ahead of most people.
I am not familiar with the idea of companies discontinuing these types of plans. And I would suggest you get started deferring into this type of plan as soon as possible once you start working. Find out about the plan your employer might offer and contribute as soon as possible (At least as much as the company matched, if not more - say 10% of pay). If you want to have sizable nest egg when you reach retirement age, you want to start saving as soon as possible. Experts suggest you save between 10%-15% of pay for your entire career in order to save enough for you to retire with an amount that could approach 10 times your salary.
I do thing 401ks will always be around. Government as well as corporations do realize this is one of the most effective ways to introduce individuals to savings. It's also the easiest considering it comes directly out of the paycheck. If it does go away, I do believe something else will come in it's place. For instance, independent financial advisors like myself can set up a retirement plan for individuals where money can come directly out of their checks if they are self employed, etc.
Diana recommends the following next steps:
- You should always save at least 10% of whatever you make, (for every $1 save a dime). Once a person start this, particularly at a young age, (below 30), it has been proven that they can have quite a lot of money saved in this account by there retirement.
I think the rumors you are talking about will not come true but if they do, be prepared and don’t rely on anyone else to fund your retirement.
Dhruv recommends the following next steps:
- Open an IRA or Roth IRA
- Learn more about investing