In January 2021 it seemed that everyone you ran into on the street was discussing the latest developments in the stock market. The experience was rather jarring for some.
There has always been a class of people that meddles in the stock market, but it seemed that interest in the market was at all-time highs. This was due to the stock market itself hitting some all-time highs, as well as some individual stock names being pushed to prices that people could not have fathomed, were possible in the past.
Stocks such as GameStop captured the public’s attention after a group of Internet posters from Reddit decided to drive the price up to unbelievable highs. This ginned up the public to pay more attention than ever to what was going on.
All of this activity has been very exciting, but it is not the norm in the stock market. The reality is that fortunes in the market tend to be built up slowly over time. Some lucky investors were able to see their money increase tenfold or more in a very brief period of time with the GameStop mania, but there were plenty of bag holders who have lost a significant amount of money in the volatile moves in this stock as well.
Most people are much happier to take on less risk and build their wealth more slowly over time. Thus, the 401(k) remains a great vehicle for retirement savings.
The 401(k) Program As Retirement Vehicle
The 401(k) as the primary vehicle that most Americans use to save and plan for their retirement is a relatively new concept. CNBC explains that the 401(k) really got kick-started as a means of retirement planning when rule changes allowed for employees to contribute via payroll deductions:
The IRS issued rules that allowed employees to contribute to their 401(k) plans through salary deductions, which jump-started the widespread roll-out of 401(k) plans in the early 1980s.
Allowing employees to add to their retirement savings via automatic deductions from their pay meant that those employees could simply set up the deduction once and then not have to put too much thought into it after that. The money would continue to be added over time, but the employee did not have to concentrate so hard on how they would contribute to the plan.
This “set it and forget it” mentality allowed for many more employees to contribute a lot more towards their retirement. Today, new hires largely expect that most jobs will offer a 401(k) program of some kind. Even low-wage jobs tend to have some kind of offering on this front as they know that it is an enticing benefit to offer to new employees. One of the dangers of not starting a 401(k) plan is that the competition will scoop up all the talent from the hiring pool, but there are far more dangers than just that.
The Pitfalls of NOT Having a 401k Plan
There is simply no getting around the fact that not having a 401(k) plan offering in today’s world is unacceptable. There are a variety of reasons why all businesses should be wary of not having a 401(k) plan. A few of these are:
- High Employee Turnover
- Lower Job Satisfaction Among Employees
- Decreased Growth Due To Staffing Issues
All of these are troubling concerns that could unnecessarily hamper a company’s goals and ambitions. Not everyone realizes just how much a seemingly simple employee benefit can impact overall results.
People tend to move around from job to job frequently these days, but one of the known factors for helping to keep people in place for longer periods of time is to offer benefits. Workforce.com explains how benefits seem to matter to an even greater degree to the millennial generation:
Four in five employees indicate they want benefits and perks more than a pay raise, and a 401(k) ranks in the top five requested benefits, according to a recent Glassdoor survey. On top of that, when it comes to millennials, benefits are particularly appealing – 90 percent of employees 18 to 34 years old say they would prefer benefits over pay.
Benefits provide a certain peace of mind that additional pay simply cannot cover. Besides that, there are often incentives to invest in a 401(k) such as a matching bonus from the employer that make this benefit more valuable than a small raise is.
Those who are secure in the benefits that they receive from their employer can begin to plan their life out in a more long-term fashion, and that is worth a lot when it comes to employee retention.
The Value Of Educating Employees About Retirement
All companies should consider taking extra time to educate their employees both about the options that they have to invest in their 401(k) and the importance of doing so.
The compound interest and capital gains that an employee can make over time are incredible, but it is vital that they begin the process as soon as possible. They should also be notified of any matching programs available within the fund, and of the various types of investment options available to them within the 401(k).
Investment selection is important to long-term results in the 401(k), but the most essential thing is to simply get started. This is so important in fact that some companies have decided to make their 401(k) program an opt-out program rather than opt-in.
This means that employees are automatically set up to send a certain percentage of their income into the fund unless they choose to opt out of the program.
This small change massively boosts participation in the plan, and this ultimately leads to better results for the employees looking to plan for retirement. Some may resist this setup simply because they don’t like to be told what they ought to do with their pay, but they are always able to choose to not contribute to the 401(k) if they choose.
The 401(k) program may have once been introduced as a novelty of sorts in the past, but they are now a fully incorporated part of the work experience. There is a lot of upside to offering these retirement programs, and there are even more dangers to not offering them.