It’s not just the match that many employees are missing out on. Fewer than 20 percent of participants, for example, use a plan’s financial wellness tools, which often include free personalized assessments, calculators to help with building emergency savings and paying down debt, and low-cost access to human advisers.
Ms. Brestowski notes that participants who engage with their financial wellness tools are more likely to increase contributions to their 401(k)s and take other positive steps toward retirement readiness. “By helping people deal with the other financial pressures they’re facing, you remove some of the barriers that get in the way of saving for retirement,” she said.
Tapping Your Savings Before Retirement
Sometimes retirement investors can be their own worst enemies, doing the hard work of saving, but then tapping the account early to cover current cash needs. Depending on the plan, anywhere from a third to nearly half of 401(k) savers withdraw part or all of their money following a job change, the Employment Benefit Research Institute has found. And Vanguard research showed that 13 percent of workplace savers borrowed from their accounts last year and 3.6 percent took hardship withdrawals. New federal rules taking effect this year will make it even easier to tap retirement accounts for emergencies by allowing annual withdrawals up to $1,000 without the usual 10 percent penalty for early distributions.
Not every early distribution or loan is a mistake. Emergencies happen, debt can become overwhelming. “If you’ve been laid off and need the funds to get by or you have high-rate credit card debt, a distribution might actually be the best use of your funds,” said Ms. Benz.
Ms. Benz suggests comparing the payoff of using the cash now — for instance, the “return” on erasing a credit card balance with a 21 percent interest rate — against the potential gains you’d give up in your 401(k). The straight math, especially for younger savers, typically favors staying the course. Considering a $5,000 withdrawal? Leave the money untouched, and it will grow to $50,300 in 30 years, assuming 8 percent average annual returns, or to $108,600 in 40 years, according to a Vanguard analysis.
Math won’t pay unforeseen medical bills, though, or cover your living expenses if you’re out of a job for an extended period. The key to rebounding if you do need to tap your account early, says Ms. Brestowski, is to mentally recommit to retirement once the crunch has passed. “Treat any withdrawal like a loan that you’ll pay back with interest,” she said “As long as you go back to saving within the structure of a 401(k), the power of compounding will do the rest.”