These days, 401(k) education is an absolute must for employees. For many workers, their 401(k) is their main (and sometimes only) retirement savings vehicle.
And study after study has shown that simply making minimum contributions to a 401(k) won’t ensure a comfortable retirement.
So whether you’re handling the 401(k) presentations on your own or getting your retirement provider to do it, here’s what you need to make sure gets passed along to employees.
Places to focus
1. Stress the importance of getting the full match. Most companies with a 401(k) offer some type of employer match to help workers’ bolster their account. Problem is, many workers don’t contribute enough to get the full match – and those workers are missing out on free money.
One way to fix this is by showing the amount workers will lose over one year, five years, 10 years and beyond by not taking advantage of the match.
2. Remind them to keep emotions out of it. It’s human nature to want to react to major market fluctuations. But it’s important to remind workers that the market is cyclical and that they should stick to the investment strategy they have in place.
3. Preach diversification. A great way for employees to safeguard themselves is by diversifying their investments. When employees put too much weight on one investment, they’re not well protected. However, if they have a healthy mix of cash, stocks and bonds, they’re not at the mercy of one investment’s performance.
4. Emphasize an out-of-sight, out-of-mind mentality. Ideally, employees shouldn’t touch any of their 401(k) savings until retirement. But sometimes a loan is unavoidable.It’s important to make sure workers see withdrawing 401(k) funds as a last resort. After all, workers who take out 401(k) distributions aren’t only hit with a 10% tax penalty, but are also required to pay income tax.