According to new research from investment advisory firm Financial Engines, although most 401(k) plan participants suffered significant losses in last year's economic collapse, with the right planning "most people can recover, if they don't panic and were on a good track to start," says Wei-Yin Hu, the firm's director of investment analysis and research.
Well, that makes perfect sense. However, statistics on savings rates show that even employees that contribute to a retirement plan don't contribute enough and that upon last year's wild stock market swings, many scared investors transferred their investments to cash or stable-value funds. In a rcent chat with Hu and some of his Financial Engines colleagues, I asked: Is there still a recovery for them?
Ken Fine, EVP of marketing, said yes, citing the firm's research that when participants started their financial "checkup," only one in four savers had an adequate retirement savings plan in place. Post-checkup, however, that number went up to about two out of three. "There's still work to be done," Fine acknowledged, "but it shows the difference that education can make."
Education is more needed than ever as scores of companies slash or eliminate 401(k) matching contributions, as well as pay, raises and -- worst-case scenario -- jobs. So, I asked Fine: If an individual was contributing 5% of salary to a 401(k), but then had to take a 5% paycut, what should they do?
Obviously, he told me that borrowing from a 401(k) or stopping contributions should be a def con 1 option, but added, "If your household becomes cashflow negative -- meaning you can't pay your bills -- you have to look at all the sources of savings you have to look into. But [a 401(k)] should be the last option."
Lastly, as the recession has squeezed tighter, Fine says that peddling Financial Engines' wares has become easier. "Employers were much less receptive 18 months ago when plans were flush and participants were getting good returns" without really trying, he said. "Now the demand for services like ours is increasing at the participant level, and employers are dealing with so many other issues, so they're much more receptive."
