Consumer Reports

How to play catch-up with your retirement

Time travel sounds like fun unless you’re talking about retirement accounts. With our 401(k), 403(b) and IRA balances back to where they were in 2003, the editors of Consumer Reports Money Adviser note that lots of us are wondering how we can ever catch up.
Employer-sponsored retirement plans lost an average of 19.1 percent of their value, or $573 billion, last year, according to the Employee Benefit Research Institute. Fidelity recently reported that its average 401(k) participant lost 27 percent, down to $50,200 from $69,200.
Meanwhile, numerous big companies, including General Motors, Kodak, Motorola, UPS and Wynn Resorts have suspended their 401(k) matching contributions, which make these tax-deferred accounts so attractive to employees. Benefit-consulting firms are reporting closures of 401(k) plans among some smaller employers, according to The Wall Street Journal.
Regardless of your age, the blow to your savings calls for a reassessment. Should you keep contributing to your 401(k) without an employer match? What if your employer pays the match in company stock? Consumer Reports Money Adviser outlines some common problems and potential solutions.
Q. Is my 401(k) still worth funding without an employer match? Many employers match as much as 3 percent of workers’ 401(k) contributions, or 50 cents per dollar, on up to 6 percent of gross pay. If that goes away, some financial advisers say, there’s not much incentive to keep investing in your company’s plan.
Instead, one adviser suggests investing outside your company’s retirement plan, first in a Roth IRA — if your income qualifies you — and then in your 401(k). You’re entitled to contribute up to $5,000 in a Roth, plus another $1,000 if you’re 50 or over. But not everyone agrees with this strategy. Other advisers say that even without the match, 401(k) plans are still worthy of your contributions up to the maximum allowable: $16,500 for 2009, plus another $5,500 if you’re 50 or older. If you can, make up for that missing match by replacing it with your own money.
Q. I’m leaving my job. Should I roll over my 401(k) money or keep it with my old employer? According to Consumer Reports Money Adviser, if your balance is less than $5,000, your old employer doesn’t have to maintain your account in its 401(k) plan, so you’ll probably have no choice but to cash it out or roll it over into an IRA. If your account is larger than that, your decision should hinge on the quality of the plan. If you’re moving to a new job, you might be able to roll your money directly into that company’s plan.
Q. My company is dumping its 401(k) plan. What should I do? This is still uncommon but can happen. The good news is that all your holdings become 100 percent vested, meaning that you’re entitled to the full amount that your company has contributed on your behalf. But you must roll over your account within the prescribed 60-day period to avoid paying income tax on the distribution and, if you’re 59-1/2 or younger, to avoid a penalty.
Q. Is a 401(k) worth it if the match is made in company stock? According to Consumer Reports Money Adviser, a match in company stock — a common practice — often isn’t ideal, but it’s better than no employer match. Investing a substantial portion of your wealth in the same place you work is always risky — just ask former Enron employees, who lost their jobs and their shirts when the company foundered.
Q. My 401(k) balance is way down. Why should I keep investing in stocks? If you have a long time horizon — five years or more — you should stay invested and continue to contribute to your stock holdings. For one thing, locking in losses by selling now isn’t wise. For another, stocks are at a significant discount and may never be so cheap again.