Retirement, 401(k) plan details are important when changing jobs


Peter Dunn | Special for USA TODAY

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3 tips for empty nests looking to replenish their savings

If you are an empty nest, make sure you have completed these 3 tasks to get your 401 (k) charged.

USA TODAY

Dear Pete,

I have about 15 years of work left and I'm still behind on retirement plans. I have a friend whose company is aggressively hiring and the 401 (k) agreement is significantly higher than the agreement with my employer. I think my friend's company has 6% coverage and at the end of the year they put in another 10%. If I can get a job there with a comparable salary, I could solve my pension financing problem. Based on my qualifications, I think I could easily get a job there. When I think about it, nothing stops me from my current job. Does it make sense?

Rebecca, St. Louis, Missouri

Answer: running. No seriously, run and apply for a job at your friend's company. If what you say is correct, it will save the day when it comes to retirement.

Sure, there are a couple of hurdles I'll cover in a moment, but if you can overcome those hurdles, get ready to submit your two week notice.

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What does a 6% match really mean?

First, make sure the 401 (k) details are what you want. I've found the average person struggling to formulate the exact details of their employer-sponsored retirement plan. For example, a 6% match should mean that the company pays 100% of the first 6% of the employee contribution. However, sometimes the employer match is described as 6%, even though the employer only pays 50% of the first 6% of the employee contribution. That's not a 6% match; that's a 3% agreement. Confusing? Probably which is exactly my point.

You also need to learn more about the 10% year-end contribution. I've seen this take a variety of forms over the years and is often a form of profit sharing. The company is very rarely contractually obliged to make this 10% contribution, as this is usually a matter of discretion. But that's not all bad. Every organization has a track record of the number of times it has met its 10% discretionary goal and you just need to find a reasonable level of comfort with it.

It's also worth noting that you should take the time to ensure that the company culture, pay, and other achievements are in line with your current culture, pay, and achievements. If you can tick all of these boxes, then follow the new gig.

In general, people should pay at least 10% of their salary into their company-sponsored retirement plan. And when combined with an average match of around 4%, you have an annual contribution of 14% of your annual salary. If a person, along with their employer, were to deposit 14% of their salary into a retirement account throughout their career, they would have a tremendous chance of success in retirement.

But if a company pays 16% of its own salary into a retirement account, you have the chance to accumulate an extraordinary amount of wealth or, in your case, make up for the lost time. Your goal should be to match your contribution.

401 (k) a top factor in career choice

Check whether you can pay at least 16% of your salary into the retirement account. That would mean investing 32% of your annual salary in the future. Impressive. Depending on how far behind you are with retirement provisions, you can make up your deficit in no time. You could accumulate five times your salary in your retirement account over the next 15 years with a return of 0%. With an 8% return, you'll have almost 9 times your salary in your account by the end of your 15 year career.

There are so many factors to consider when evaluating job openings, and it is wise to put 401 (k) matching at the top of the list. My gut instincts tell me that more workers in their early 50s will start doing the same thing, especially those whose account balances are not nearly as high as they should be.

Peter Dunn is a writer, speaker and radio host and has a free podcast: "Million Dollar Plan". Got a question for Pete the Planner? Send him an email at AskPete@petetheplanner.com.

The views and opinions expressed in this column are those of the author and do not necessarily reflect those of USA TODAY.

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