Max out retirement benefits with simple steps

Many Americans 50 or older will need to put savings on a fast track to retire comfortably at age 65.

A great way to do that is to ensure they are seizing every employer-provided opportunity afforded them.

According to Rob Austin, director of retirement research at Lincolnshire, Ill.-based Aon Hewitt, 82 percent of those 50+ take advantage of their employers' 401k plans.

"So right off the bat, 18 percent are not participating at all," Austin says. "We see non-savers across every age demographic. Some of that is due to people thinking they can't afford to save, or not knowing the steps they need to take to participate. Others don't have the time or energy to participate.

"To some folks, investing in the stock market is a complete foreign language. They fall into that thought that, 'The stock market is not for me.'"

Step by step

Maximizing retirement savings from a 401k and other employer-provided programs is entirely possible if a two-step approach is followed. The first step is participating in the plan, Austin says. Step two is to "make sure you're saving at least robustly enough to qualify for the full employer match," he adds.

"Eighty percent of those individuals participating in their plans are saving at a rate where they receive the full match from their employers. The pessimistic angle is that one in five — 20 percent — are saving below the level at which they should be saving to receive dollars their employers are offering them."

Sev Meneshian, president of Public Retirement Planners in Evanston, Ill., is one who observes this all too often. "A lot of people don't take advantage of a 401k match, and it absolutely kills me when I see that," he says. "Most of the time, if you put in three percent, (employers) will match that."

Why don't employees take full advantage of what is essentially free money given by their employers? Some argue they will have to work until they die anyway, so they don't see the point, Meneshian says.

In other instances, a husband and wife will max out the higher earner's 401k contribution, and forget about the lower earner's 401k plan.

That's a big mistake, Meneshian says. "They're almost literally leaving money on the table by not taking advantage of that match."

Another reason for non-participation is that the human resources manager¿or department doesn't fully explain the 401k plan and match. The employee may know of the 401k plan match, but won't take advantage out of fear of not fully knowing how the plan works.

Of course, another big reason is the belief they can't afford to invest.

"Not many people are getting salary increases these days," says John Graves, Ventura, Calif.-based author of "The 7% Solution," a 2012 retirement planning book (Safe Harbor Publishing). "A significant percentage of middle-income America is literally living paycheck to paycheck. Because they're living paycheck to paycheck, they don't see the value of putting money aside."

Watch for fees

In addition to maxing out 401k plans to obtain the greatest employer contribution, employees should be watchful for high internal fees on their investment choices within a plan. So says Donald B. Cummings, Jr., managing partner with Blue Haven Capital LLC, an investment advisory firm in Geneva, Ill.

Simply put, the higher the fees, the lower the return. Over a decades-long work career investing into a 401k, those lower returns could mean much reduced retirement savings. Cummings offers the example of an S&P 500 fund charging more than 2-1⁄2 percent in fees, versus a low-cost fund tracking the same index charging five basis points. If the S&P 500 returns 15 percent, those in the former fund earn 12.5 percent, while those in the latter earn 14.95 percent.

"That can add up to hundreds of thousands of dollars in a lifetime," Cummings says. "Employees need to make employers aware of this."

Employees have the option of encouraging their employers to take more of a fiduciary responsibility and provide better 401k investing choices, he adds.

Also remember the lowest fees aren't always best, Austin says. Compare the fees being charged with the returns earned. "If you pay higher fees, you may be getting higher returns, in which case the fees are worth it," he reports.

Other ways to save

Beyond 401k plans, there are other ways for employees to grow their retirement savings. Employer-paid tuition programs are an example. Many looking to quit their jobs at 55 or 60 will want to transition into second careers.

To do that, they may need to pursue a degree. "They can sharpen their skills, meet new people and possibly have (the tuition) be partially or totally free," Meneshian says. "If you're going to retire in five years, you could take advantage of the paid tuition and still meet the requirement companies have to stick around for two years after the tuition is paid."

Corporate discounts are another area too often overlooked. "Few people take advantage of them," says Meneshian reports. "Through my wife's employer, we save 10 percent monthly on our cell phone bills."

One final suggestion is that older wage earners do some belt-tightening as they get nearer 65. Reducing the amount they're living on by 10 percent can benefit them both in saving for retirement and during retirement.

"If people tighten their belts while they are still working and save a little more, they¿get used to living on a slightly smaller amount," Austin says.

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