Personal finance Q&A: How to get employees to take advantage of retirement plan
Dear Liz: We have 90 employees, many of them millennials, and only about 30% take advantage of our retirement plan. What resources and advice can I use to get our employees to take control of their retirement future?
Answer: The youngest generation of adults and near-adults vividly remembers the stock market crash and financial turmoil of 2008-09. So they’re understandably wary of investing, plus more of them are dealing with student loan debt than previous generations. Getting them to focus on investing in their futures can be difficult.
That said, employers have discovered that one of the most effective ways of getting this and other generations into retirement plans is to enroll them automatically. Status quo bias — the human tendency to accept the current situation rather than struggle to change — pays off in this case, since once in the plan few people decide to opt out. You can take further advantage of this inertia by offering an auto-escalation feature that increases employees contributions 1% or so each year.
Company matches, simpler investment choices such as target-date funds and access to advice (human or computerized) also can increase participation. If your plan provider isn’t offering you suggestions for increasing enrollment, it may be time to look for a new one that can.
Options for paying down debt
Dear Liz: I am wondering about what to do with some debts I have due to divorce. I make about $50,000 a year and owe $50,000 in credit card debt, attorney’s fees and back property taxes. The good thing is that I own a house free and clear that is worth about $2.5 million. The bad thing is that my credit score is terrible, about 450. Should I slowly try to pay down my debt? Is there anyone who would lend me the money with a home equity line of credit or something similar? I have two children in college who need money from me as well.
Answer: Paying down what you owe over time could be difficult given the size of your debt relative to your income. Often when consumer debts equal or exceed a person’s annual pay, it’s time to consult a bankruptcy attorney. That may not be a good option for you, though, because a bankruptcy court might require you to sell your house to satisfy creditors. Only a handful of states, including Florida and Texas, protect the entire value of a home in bankruptcy.
You could try to get a home equity line of credit, but you’ll probably have a tough time finding a lender. If you succeed, you would face high interest rates.
Selling the house and downsizing could help you settle your debts and free up money for your children’s educations. That’s a big move, though, and could have tax as well as financial aid implications.
Your debt shouldn’t be your only concern. You also need to think about how you’ll pay for retirement and other future costs, such as medical expenses and long-term care.
You need some help making these decisions. A fee-only planner could look at your entire financial situation and offer advice, as well as referrals to tax and bankruptcy experts who could offer their assessments of your options.
Social Security spousal benefits
Dear Liz: I have a few Social Security credits but not enough for full Social Security benefits. My husband receives a check monthly. He is 79 and I am 75. Am I eligible for any benefits at this time?
Answer: You’ve been eligible for full spousal benefits since you turned 65. You could have gotten a reduced amount as early as age 62. You’ve missed out on thousands of dollars of benefits that were yours to claim.
People need 40 credits with Social Security to apply for their own retirement benefits. Typically that means working a minimum of 10 years. But you didn’t have to work at all to receive spousal benefits based on your husband’s employment record. At your own full retirement age (which is now 66, but was 65 until recently), you could have received a monthly check equal to 50% of your husband’s benefit.
Once you file, you only can get six months of retroactive benefits. There’s nothing that can be done about the rest of the benefits you’ve missed, but perhaps this letter will alert other spouses that they may qualify for Social Security even if they haven’t worked much outside the home.
Questions may be sent to Liz Weston, 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com. Distributed by No More Red Inc.
