Corporate cost-cutting opens other avenues for employees to invest for retirement
With the health of the economy still questionable, many companies are no longer matching employee contributions to 401 (k) retirement accounts.
The 401 (k) plan that the majority of Americans are familiar with was established in the late 1970's. It evolved from traditional employer-funded pension plans which many employees sought out as a way to pad the nest egg. Employers used their pension plans as a way to entice workers to join their companies. Many well-established organizations like labor unions still have pension plans available.
Many organizations saw this as a way to save money because the employee, in essence, determined how much the company contributed. The costs of maintaining the programs are also passed along to those who contribute.
Now, many companies are freezing their contributions to 401 (k) plans in reaction to the sour economy. This leaves many people with no option but to determine where they will invest for their retirement. The companies that stop funding employee retirement programs are taking away a major benefit to employees. This is an immediate boon to the organizations bottom line. The money is no longer being paid in to the program.
This sets a dangerous precedent. Many have left open-ended their option to begin contributing once again. It is the company that will determine when the economy has righted itself sufficiently or that profits are once again high enough, to begin matching employee contributions.
Many employees are left wondering what they can do when they see that the company is not the driving force in their retirement. The relative health of the Social Security system has been questioned long before the economy went south.
One investment opportunity that many utilize is mutual funds. The advantage of mutual funds is that there are many different stocks within the fund, which ensures relatively steady investment. With consistent contributions made every month, the investor is using the advantage ofdollar-cost averaging. When the market is up, you're buying fewer shares. When the market it down, you're buying more. It keeps the investment on an even keel.
Another option for retirement investing is stocks. With so many options, it can be difficult to determine exactly which company to use. But with so many options, the price is very competitive. In fact, it can all be done online and it's relatively inexpensive. Some online brokerages charge as little at $7.95 per transaction. These online investment houses do provide some research and some advice, but the investor is on the hook to pore through all of the information, including some objective information that can be found on any news website. It is truly taking your financial future into your own hands.
The Individual Retirement Account (IRA) is another option, and can be set up with almost any stock broker, bank or credit union, insurance company, or mutual fund. There are several types of IRA available and they will have some tax advantage for the investor. There are limits on the amounts that can be contributed annually, and investors will need to research which IRA they are eligible to contribute to and how the funds will be distributed.
Of course there are other options available such as bonds, annuities and CDs. But with the economy down, these typically do not offer the return that many investors find appealing. They are safe, however.
Investment is risky as a rule. Retirement investing without proper knowledge is even riskier. Each investor should practice due diligence by researching options, keeping track of investments and keeping informed about other options. The down market does present one opportunity…investors can take advantage of relatively lower prices and could see big returns on their investment. For as much as has been lost, those who have been consistent with contributions to their retirement accounts should see the rewards offered through dollar cost averaging.
Hopefully, organizations will reinstate matched contributions to their employees' 401 (k) plans and not use it as a way out of providing this benefit. Employees have come to expect this as a part of their total compensation package, and as a reward for their company loyalty. It would be doing them a disservice after all that has been lost in the economic downturn if those companies who have discontinued contributions do not reinstate them if only to pad the bottom line.
The 401 (k) plan that the majority of Americans are familiar with was established in the late 1970's. It evolved from traditional employer-funded pension plans which many employees sought out as a way to pad the nest egg. Employers used their pension plans as a way to entice workers to join their companies. Many well-established organizations like labor unions still have pension plans available.
Many organizations saw this as a way to save money because the employee, in essence, determined how much the company contributed. The costs of maintaining the programs are also passed along to those who contribute.
Now, many companies are freezing their contributions to 401 (k) plans in reaction to the sour economy. This leaves many people with no option but to determine where they will invest for their retirement. The companies that stop funding employee retirement programs are taking away a major benefit to employees. This is an immediate boon to the organizations bottom line. The money is no longer being paid in to the program.
This sets a dangerous precedent. Many have left open-ended their option to begin contributing once again. It is the company that will determine when the economy has righted itself sufficiently or that profits are once again high enough, to begin matching employee contributions.
Many employees are left wondering what they can do when they see that the company is not the driving force in their retirement. The relative health of the Social Security system has been questioned long before the economy went south.
One investment opportunity that many utilize is mutual funds. The advantage of mutual funds is that there are many different stocks within the fund, which ensures relatively steady investment. With consistent contributions made every month, the investor is using the advantage ofdollar-cost averaging. When the market is up, you're buying fewer shares. When the market it down, you're buying more. It keeps the investment on an even keel.
Another option for retirement investing is stocks. With so many options, it can be difficult to determine exactly which company to use. But with so many options, the price is very competitive. In fact, it can all be done online and it's relatively inexpensive. Some online brokerages charge as little at $7.95 per transaction. These online investment houses do provide some research and some advice, but the investor is on the hook to pore through all of the information, including some objective information that can be found on any news website. It is truly taking your financial future into your own hands.
The Individual Retirement Account (IRA) is another option, and can be set up with almost any stock broker, bank or credit union, insurance company, or mutual fund. There are several types of IRA available and they will have some tax advantage for the investor. There are limits on the amounts that can be contributed annually, and investors will need to research which IRA they are eligible to contribute to and how the funds will be distributed.
Of course there are other options available such as bonds, annuities and CDs. But with the economy down, these typically do not offer the return that many investors find appealing. They are safe, however.
Investment is risky as a rule. Retirement investing without proper knowledge is even riskier. Each investor should practice due diligence by researching options, keeping track of investments and keeping informed about other options. The down market does present one opportunity…investors can take advantage of relatively lower prices and could see big returns on their investment. For as much as has been lost, those who have been consistent with contributions to their retirement accounts should see the rewards offered through dollar cost averaging.
Hopefully, organizations will reinstate matched contributions to their employees' 401 (k) plans and not use it as a way out of providing this benefit. Employees have come to expect this as a part of their total compensation package, and as a reward for their company loyalty. It would be doing them a disservice after all that has been lost in the economic downturn if those companies who have discontinued contributions do not reinstate them if only to pad the bottom line.
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