This year, I’m committed to changing my life by becoming an active participant rather than a passive bystander. So far, it’s paying off for me. A few weeks ago, I decided to take a risk by accepting a position with a recently acquired company that’s branching out and starting a new division. There are so many decisions to make when you’re going through a job transition: which medical benefits program to enroll in, how to schedule your doctor appointments around a possible lapse in coverage, what to do with your retirement benefits at your previous employer and what elections to make in your new retirement plan.
During a break from training, I began discussing with a co-worker what we planned to do with the retirement plans from our previous employers and whether we would be participating in the new employer’s plan. Generally, I have a few rules of thumb when it comes to retirement savings: always invest up to the company match and NEVER take an early withdrawal or loan from your plan. My solution is to rollover the funds from the old employer into my current employer’s 401k plan or a Rollover IRA and contribute up to the company match with my new employer. He plans to cash out the old account and not contribute to the new one.
I’ve always thought that my rules should be pretty standard for everyone. But what if they aren’t? He and I are at two totally different stages of life. He is the primary earner in his household with his wife only working about four months out of the year. They have one child entering kindergarten in the Fall and another on the way in the Summer. I’m single with no children and a safe handle on my debt. It’s fairly easy for me to rollover my past contributions, contribute up to the match with my new employer and still pay my monthly bills, save and pay down debt. For him, things are a little tighter. He’d rather have the additional cash available for him in case of an emergency and can’t justify having a mound of debt here with cash that he can’t touch over there. He also cited the volatile market and his ability to collect Social Security benefits when he retires. While I can totally get why he wouldn’t want to invest in his retirement without having a proper emergency fund and with a large amount of debt, I’m not so sure about those last two reasons.
One of the biggest mistakes that we often make is not contributing to our retirement plans. I understand that having a portion of your salary deducted each pay period in addition to taxes and medical benefits sounds painful, but it isn’t. The cash is immediately deducted and I never even miss it. There are several benefits:
If saving for your retirement fits into your current financial plan, log onto your company’s benefits website and elect to have your retirement contribution deducted up to the company match. And if you think you may have left some cash with a previous employer, do some research to confirm and explore your options.
If you can’t afford to make those contributions now, take a look at your finances and come up with a plan for tackling debt and increasing liquid savings. Then, determine how saving for retirement fits into your plan.