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Mullooly Asset Management

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Has Your Company Suspended Its 401(k) Match?

June 22, 2020 by Mullooly Asset

The last few months have seen a lot of change at the Jersey Shore.  Everyday life had ground to a halt, and now is slowly re-opening itself one day at a time.  From Cape May, to Belmar, all the way to Jersey City, every inch of our great state has felt the impact of COVID-19.  Our companies and local businesses are no exception.

According to a recent survey by the Plan Sponsor Council of America, 16.1% of organizations across the country have suspended matching employer contributions due to COVID-19. On top of that, 1.3% of businesses have eliminated their 401(k) plans altogether. A large amount of New Jersey workers rely on their 401(k) and matching employer contributions as a bulk of their retirement savings.

If your employer has recently made an adjustment to its 401(k) offerings, you may be wondering if this will impact your ability to enjoy your retirement as planned here at the Jersey Shore.  Here are a few things to consider:

Why Are Employers Changing Their 401(k) Plans?

COVID-19 has had a massive impact on businesses, not just here in New Jersey, but around the world. With most states implementing stay-at-home orders, businesses have been forced to reduce hours or cease operation altogether. Since us “New Jerseyans” were encouraged to stay home throughout March, April, May and now into June, foot traffic disappeared all across the state.  It was certainly different walking an empty boardwalk in Asbury Park, or seeing the beach entrances in Spring Lake roped off this spring.

Even as New Jersey begins relaxing measures and stores start opening back up, our state and the country as a whole remain in a fairly volatile market. Businesses are struggling and searching for ways to cut spending and save money. One of the first things to go is often, unfortunately, employer-sponsored benefits such as 401(k) plans or their matching contributions.

What Should You Do if Your Matching Contributions Are Suspended?

In the case that your employer does suspend matching contributions, there are a few next steps you can take to help make sure your retirement here at the Jersey Shore is still on track!

Don’t Panic

Having an employer suspend matching contributions, even if it’s only temporary, is a sign of the times. People here in Monmouth County are worried, and have questions about their retirement plans.  If you’re wondering if you’d be better off emptying out the 401(k) account and stashing the money under your bed, you’re likely not alone.

Decisions about your money should be made with objectivity – not gut reactions and emotions. Hastily taking any amount from your 401(k) now will only rob your future retirement. Unless you’re in serious need of immediate financial help, this option should be avoided.

In Ep. 300 of the Mullooly Asset Podcast, Brendan explained the phrase “stress-adjusted returns”.  When an investor panics and takes all of their money out of the market, not only does it affect their real returns, but it also increases their stress levels.  By not panicking, and not making emotional all-in/all-out decisions, you can avoid stressing yourself out wondering if you made the right move.

Revisit Your Investments & Financial Plan

If you haven’t already, use this as an opportunity to evaluate your current investment strategy and how it fits in your financial plan moving forward. This may be a good time to check if the initial goals you set are still your goals today.  Do you still want that summer house in Manasquan?  Is it still feasible to retire in a few years and work part time near the beach in Sea Girt?  This is a great time to re-evaluate where you want to go.

Increase Your Own 401(k) Contributions

While your employer may have eliminated their contributions, that doesn’t mean you still can’t contribute to your 401(k). By revisiting your own financial plan, along with the help of your financial planner, you can determine if you can afford to send MORE into your 401(k) to make up for those lost matching contributions.

Remember, the contribution limit for a 401(k) increased in 2020 to $19,500. If you’re over 50, you’re allowed to contribute an additional $6,500 in catch-up contributions. Every penny counts when it comes to preparing for retirement.

Talk to Your Financial Advisor Today

Your financial advisor’s sole responsibility is to help you make unemotional, educated decisions about your money based on the financial plan you have put together. Use your advisor as a sounding board to voice your concerns and discuss potential paths forward. How can I make up for the missing contributions? Will I still be able to retire here in Monmouth County? Will I have to move out of New Jersey? You likely have plenty of questions regarding this change to your 401(k), and talking to your advisor is the perfect place to start.

If you don’t have a financial advisor, we would be happy to speak with you.

Click here to schedule a meeting.  There’s no cost or obligation.

Filed Under: Retirement Planning Tagged With: 401k account, Financial Planner, personal finance, retirement

Coercion versus Changing Behavior

January 5, 2018 by Thomas Mullooly

When we begin working with new clients, we try our best to explain investing is (to some small degree) a participation sport. Clients need to be involved! And for the most part, clients get it. I’d like to believe we do a good job of explaining what’s needed and we stay in good contact.

But I was thinking about that as I read the article in this morning’s issue (January 5, 2018) of the Wall Street Journal about the “Downside of Automatic Savings: More Debt.”  The WSJ is a subscription website. I’ll spare you the expense: the gist of the story sits squarely in that headline.

Coercion versus Changing BehaviorIt seems that what folks are learning is: getting new hires automatically invested in a 401k at work, WILL build their account balances. Nearly 70% of all plans feature some form of automatic enrollment, according to the article.

That’s the good part.

The bad part: many are discovering these very same folks are now carrying larger debt balances. If you think it through, it may make some sense. Automatically enrolling new hires into a 401k account takes current cash flow out of their pocket — money that could be used to pay down student debt, pay down a car loan, credit card balances or save for a down payment on a home.

From a related WSJ article today from Anne Tergesen (@annetergesen), Neil Lloyd, head of U.S. defined contribution and financial wellness research at consulting firm Mercer, said “the findings aren’t a total surprise. He cites a client with high employee turnover that recently added auto-enrollment only to reverse course after the number of 401(k) loans increased.” according to the WSJ article.

Young people are learning the importance of saving for retirement. The investment industry has done a fair job (not a great job) getting that message out. We could do better. But plowing money from each pay period into an account that can’t (or better, shouldn’t) be tapped for twenty, thirty years or longer makes little sense when you are having trouble paying a student loan, or saving for a down payment on a home.

Or carrying some other kinds of debt.

I’ve commented on similar themed-articles in the WSJ in the past: if we can construct a model that forces new hires to automatically enroll in a retirement plan, why can’t employers construct a model that forces (“encourages” may sound less strangling) encourages new hires to build a primary after-tax savings account first?

Suppose once a new hire reaches $10,000 in a savings bucket, they would then be invited to join the 401k plan at work? This would reduce the potential for tapping into the 401k account for a new car, paying off credit cards, or student loans, or for that big down payment.  Holding a 401k loan is still a loan that needs to be repaid.

Plus, we’ve discussed with our planning clients how a clear shift in mindset develops when you have a few bucks in the bank. Planning clients have told us how they relax and don’t stress as much when there’s a cash balance available for emergencies, instead of “praying” your car won’t break down.

We work with clients who carry 403b, 457 accounts and 401k accounts. Currently we see 29% of our clients with these retirement plans carrying loan balances against a retirement account. And of our clients under age 35 (not a small sample size), the number approaches 50%.

But one of the comments in the WSJ article made me sit back and think “bigger picture.” The commenter wrote: “So coercion is not a good way to change people’s behavior? Shocking.”

If employers are going to be “in the coercion business” by forcing new hires to automatically enroll in a retirement account, maybe they ought to consider the post-tax savings plan I’ve suggested as an alternative.

On the other hand, perhaps what might make a better suggestion would be to have employers provide new employees a mandatory one-on-one sit-down with a fiduciary financial planner for sixty minutes (at the employers expense) to talk about some choices they ought to consider before enrolling in a plan.

For the record to employers, the Mullooly Asset Management team is available for these arrangements!

Filed Under: Investor Behavior, Financial Planning Tagged With: 401k account, 403b annuity, 457 plan, saving

Tim’s Top Links – 1/11/17

January 11, 2017 by Timothy Mullooly

timThere is certainly a lot of change happening, or about to happen in the United States.  In a matter of days we will have a new President, and regardless of your feelings about the matter, it’s going to happen.  There are certain things, both in and out of the market, that you can control.  The most important thing is to focus on what you can control, and position yourself in the best possible way to make the most of it.  Focusing on things outside of your control is a waste of your time.  This goes for things in every day life, as well as the finance industry.  Just try and keep that in mind as you go about your day. *Steps off soap box*

Here’s what I’ve been reading this morning:

’10 Things You Can’t Learn From a Backtest’ – Ben Carlson – A Wealth Of Common Sense

‘The 401(k) Road to Serfdom’ – Anthony Isola – A Teachable Moment

‘High Paid MBA Types are “Sheep”‘ – Tadas Viskanta – Abnormal Returns

‘Passive Investors – Dumb Money or Smart Money?’ – Cullen Roche – Pragmatic Capitalism

‘How Differences In Composition Distort Market Valuation Differences’ – Lawrence Hamtil – Fortune Financial

ENJOY!

 

Filed Under: News Tagged With: 401k account, market conditions

Mullooly Asset Show Episode 30

May 17, 2016 by Thomas Mullooly

1:50 – The effects of negative numbers

NewFound Research Article

The transcription for this video can be found here

Filed Under: Videos, Investor Behavior Tagged With: 401k account

Mullooly Asset Show Episode 25

March 18, 2016 by Thomas Mullooly

1:59 – Should I check my 401(k) on my cell phone?

Here is the link to the transcription of this video

Filed Under: Videos, Investor Behavior Tagged With: 401k account

Mullooly Asset Show Episode 16

January 28, 2016 by Thomas Mullooly

1:23 – Do the best performing sectors from last quarter make good investments?
3:46 – Rolling over your 401(k)

Here is the transcription for this video

Filed Under: Videos, Asset Management Tagged With: 401k account, relative strength

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