The pandemic dealt a devastating employment blow to the country, but the picture is starting to brighten. Initial jobless claims fell to their lowest level in mid-March since the pandemic began and the unemployment rate has fallen to 6.2% from a high of almost 15% at the height of the pandemic last spring.
If you have recently started a new job or will be starting one soon, congratulations! Here are a few things from a retirement planning perspective to keep in mind as you get started.
1.Determine how much of your pay you want to contribute to a retirement plan. There’s usually a lot of paperwork and other details to complete when you start a new job. Among these details might be an application to join your new employer’s 401(k) or other retirement plan. Or, a growing number of companies today are using auto-enroll to sign new employees up for their plan automatically when they start their job, or very soon thereafter.
This is one new job detail that you shouldn’t let slip through the cracks. Every week, month or year that goes by without joining your employer’s retirement plan is time that you can’t get back when it comes to saving for retirement.
You may be given the choice of contributing a certain percentage of your pay to the plan or a certain dollar amount each pay period. A common goal of many people is to save 10% of their gross income for retirement. If this is too much right now, that’s OK — the most important thing is to join the plan as soon as you’re able and start contributing whatever amount or percentage you’re comfortable with. You can always increase your contributions later if your finances allow.
2. Find out if your new employer offers a retirement plan match and, if so, how it works. A retirement plan match is as close as it gets to a “free lunch.” Every matching dollar that your employer contributes to your plan on your behalf represents a risk-free return on your investment.
Businesses have a certain amount of latitude in terms of how they operate their retirement plan match so you need to find out the particulars of your plan. For example, your employer might offer to match your contributions on a dollar-for-dollar basis up to a certain percentage of your earnings (such as 6% of salary). Or your employer might offer to match 50% of your contributions. Either way, this match represents a guaranteed investment return.
Also find out of there is a vesting schedule associated with the employer match. Some businesses require employees to work for the company for a certain period of time before they are allowed to keep all of the company match. This could affect your decision to change jobs later down the road, especially if you have a large balance of unvested employer contributions.
3. Decide what to do with your retirement account at your previous employer. If you participated in a retirement plan at your last employer, you’ll eventually have to decide what to do with these funds. Depending on the plan rules, you may be able to just leave them in your account there. However, many experts recommend against this because over time you might lose track of the money. This option can also be costly in terms of excess fees.
The best option for many people is to rollover the funds into their new retirement account at their new employer. This way, all of your retirement funds are kept together under one “roof,” which makes keeping track of retirement savings easier. Talk with your new employer’s HR department about the details of a 401(k) plan rollover, including any potential tax implications.
If your new employer doesn’t offer a retirement plan, your best bet may be to open an IRA and rollover the money from your old 401(k) into it. This option will probably give you the most flexibility when it comes to having a wide range of investing options to choose from.
Give us a call if you have any questions about these and other retirement planning steps you should take when starting a new job.