Latest news with #definedcontribution
Yahoo
6 days ago
- Business
- Yahoo
Here's the Vanguard 401(k) Participation Rates by Income Level, According to a New Report. How Do You Measure Up to Your Peers?
Key Points 401(k) participation rates increase with higher income levels. There are significant downsides to not contributing to such plans. Even putting a little bit into one can make a difference down the line. The $23,760 Social Security bonus most retirees completely overlook › The 401(k) is perhaps the most popular defined contribution plan available. It comes with a host of benefits, including employer match, competitive contribution limits compared to other plans, and rollover options for workers switching jobs, among others. It's no wonder that millions of people rely on them to save for retirement. However, participation rates vary by income level. A recent report from Vanguard, a leading investment advisory company, sheds more light on this fact and can help you get a sense of what your peers are doing, which could, in turn, help guide your retirement planning strategy. Let's examine what this report says. Higher income equals higher participation rates Vanguard releases its "How America Saves" report annually. It examines the financial trends and habits of nearly 5 million of its clients, many of whom are enrolled in defined contribution plans, such as 401(k) plans. They aren't necessarily representative of the rest of the population. That said, Vanguard's data shows what many people are doing with their money, and, among other things, whether they are opting for defined contribution plans. A nifty feature of the report is that it breaks down participation rates in defined contribution plans by demographics, allowing you to compare yourself with your peers. Vanguard released the latest iteration of this report this year, using numbers (actual and estimated) from 2024. And it reveals that those with higher incomes are more likely to have a 401(k). Here is a breakdown of participation rate by income level, based on Vanguard's data. Income Level Participation Rate Less than $15,000 31% $15,000 to $29,999 49% $30,000 to $49,999 74% $50,000 to $74,999 86% $75,000 to $99,999 88% $100,000 to $149,999 90% $150,000 and up 95% Data source: Vanguard Group. What to do if you aren't saving for retirement It probably comes as no surprise to you that people with higher incomes -- who have more to spend and to save -- are more likely to be putting money into retirement accounts. If you are among these higher earners and are regularly setting money aside, for a 401(k) or another plan, keep at it! But what about those who aren't? Of course, any single person's highly specific set of circumstances gets lost in the data. There may be a good reason why you aren't putting money into a 401(k) that applies to you and you only. For those who aren't doing so because they believe they don't have the funds, that's understandable. However, it's essential to keep a few things in mind. First, any amount you put into your 401(k) and that is invested in productive assets, like stocks, will be growing while you sleep. By not saving money, you are missing out on years of potential returns. Time is your best friend on the stock market. Money invested in ETFs that track major market indexes is bound to generate strong returns over the long run. And with many online brokers now offering fractional shares, you can invest in top stocks or ETFs even with $1, regardless of their actual share prices. Suppose you are 35 and decide to save $1 every day and invest $365 at the beginning of every following year for 30 years. With an 8% annual return -- a reasonable estimate of the stock market's long-term performance -- you'd have $48,329.11. That's not enough to retire on, but it's a lot better than nothing. And employer matching is one of the best features of a 401(k). By not participating, you are essentially forgoing free money and years of returns on that free money. Let's do the same exercise as above, but this time with employer matching, assuming that for every dollar you put into your 401(k), you receive the same amount up to a certain percentage of your salary. So, you'd be investing $730 at the beginning of every year for 30 years. That would amount to $96.658.22 with the same annual return once all is said is done. Again, probably not enough for most Americans to live on in retirement, but it's better than nothing. Here's the point of this exercise. Though it may be hard to set money aside for retirement because of your finances, every little bit you save helps, especially when you take employer matching and stock market returns into account. Creating a budget, if you don't already have one, can help you set aside any amount of money you can for a 401(k). Budgeting can also help those with higher incomes who feel they should be setting aside money for retirement but aren't doing so. Here's the bottom line. Saving for a retirement that is years, perhaps even decades, away may seem like an expensive proposition. But it might be even more costly not to do it. The $23,760 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known could help ensure a boost in your retirement income. One easy trick could pay you as much as $23,760 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Join Stock Advisor to learn more about these Motley Fool has a disclosure policy. Here's the Vanguard 401(k) Participation Rates by Income Level, According to a New Report. How Do You Measure Up to Your Peers? was originally published by The Motley Fool Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Wall Street Journal
01-08-2025
- Business
- Wall Street Journal
Private Equity Worries That Trump Might Bundle Crypto Into 401(k) Order
A major policy win for private equity could now come with unwanted strings attached. For months, Wall Street has been expecting the Trump administration to issue an executive order that will help private-fund managers get into Americans' defined-contribution retirement accounts. The move would assist private-equity firms in realizing their long-held dream to manage some of the nearly $9 trillion held in 401(k) savings plans, which could be a lucrative source of fees.
Wall Street Journal
29-07-2025
- Business
- Wall Street Journal
Private-Equity Firms Haven't Cracked the 401(k) Fee Riddle, Experts Say
The private-equity industry's fee model has for decades been the envy of Wall Street. Entering defined-contribution retirement accounts could force it to change. Right now the private-equity industry, which typically manages money for large institutions and the rich, has a golden opportunity to break into the $12.2 trillion U.S. defined-contribution industry.
Telegraph
22-07-2025
- Business
- Telegraph
‘Will pension rules block me from withdrawing £50k?'
Write to Pensions Doctor with your pension problem: pensionsdoctor@ Columns are published weekly. Dear Charlene, I've reached age 60, which is the retirement age for my Barclays pension. Part of my pension is in the old Barclays 1964 defined benefit scheme, and this will pay me an income for life. The rest is in the 'Afterwork' scheme that replaced it. The scheme is made up of a credit account and an investment account. My understanding was that Afterwork was a defined contribution scheme, and I would be able to simply transfer this part somewhere else to access drawdown, but I'm confused by the credit account element and what this means. It is referred to as a 'cash balance arrangement'. Does this mean it is also a defined benefit scheme? The reason for asking is that the credit account is worth around £50,000, and I need to know if it comes under the rules requiring independent financial advice. From reading your column, if it counts as a defined benefit, I think I am going to struggle to find anyone to give me the required advice. This risks leaving me with an annuity as my only option, which would drastically alter my plans. I really need access to drawdown to top up my income until I receive my state pension, at which point I will have enough for my needs in retirement. I am hoping I am not going to end up stuck in limbo. Kind regards, Dear Carole, The pension tax rules split pension schemes into categories based on the benefits they can provide. Cash balance pensions are classed as a type of defined contribution scheme. They differ from most other defined contribution schemes because the value of the end pot doesn't just depend on what is paid in (contributions) and investment returns. Instead, there is also usually a guaranteed sum at retirement. This could be a minimum pot value or a guaranteed amount built up each year. While a guarantee might make it sound like a defined benefit scheme – and many resources online incorrectly label cash balance schemes as defined benefit – they are treated as defined contribution or money purchase. Moving to the Barclays Afterwork scheme, the 'credit account' is the guaranteed element. According to my research, this would build up a guaranteed credit of 20pc of your pensionable salary each month if you contributed 3pc of your salary each month towards it. The scheme also applied inflation-linked increases each year to the value of the credit account up to a maximum of 5pc. The money paid into the credit account is managed by Barclays, together with the scheme trustees, to ensure you can benefit from the full guarantee at the scheme retirement age. As you've mentioned, Barclays Afterwork has a normal retirement age of 60, and it is currently closed to new entrants. You could also make additional contributions to the second section of the Afterwork scheme, known as the investment account. You picked how much extra to pay in (as a lump sum or regular contributions), and Barclays would match this up to 3pc of your pensionable salary. If you chose to pay into the investment account, you'd have chosen a fund for the cash to be invested into. This section would move up and down in value, depending only on how your chosen fund performed and how much was paid in. As you are already at the scheme's retirement age, the trustees should have set out your options and what you need to do to access your pension in the way you'd like to. Drawdown can only be paid from cash balance pensions and other money purchase schemes. That doesn't mean a scheme must offer a drawdown, but it is another difference between defined benefit schemes, which cannot offer a drawdown. If your scheme does not offer drawdown, you should be able to transfer the total account (both credit and investment sections) to a scheme that does. You can request confirmation of the transfer value from the Barclays Afterwork trustees. Now that you've reached retirement age, there should not be a difference between the total account value and transfer value. People transferring before reaching the age of 60 should take care, as an adjustment can often be applied to the credit account to reflect early retirement. When you must get advice You must get specialist financial advice to transfer, cash in, or convert a plan that contains 'safeguarded benefits' worth £30,000 or more. This includes converting these funds to provide a flexible income using drawdown. The definition of safeguarded benefits includes defined benefits (like your Barclays 1964 scheme) but also casts a wider net, including other pots with guaranteed minimum pensions and/or guaranteed annuity rates attached to them. The legal definition of safeguarded rights (which can be found in the Pension Schemes Act 2015) appears to specifically exclude cash balance arrangements. While there might not be a legal requirement to get advice, you can still engage a regulated adviser to help you find the best way to bridge your income between now and reaching state pension age. An adviser can help you understand which option is best for your individual circumstances, recommend a provider, and even recommend an investment strategy to help you support your withdrawals, should you decide to move forward with drawdown. There is plenty to double-check with the trustees of the Barclays Afterwork scheme here, but I'm really hopeful that you will not be left in limbo as you initially feared. With best wishes, - Charlene Charlene Young is a pensions and savings expert at online investment platform AJ Bell. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.
Bloomberg
07-07-2025
- Business
- Bloomberg
Why Dutch Pensions Overhaul Will Reverberate in Swaps Market
The Netherlands is overhauling its pension system to adapt to an aging population and the fact that people no longer remain with the same employer for their entire working lives. The Dutch occupational pension system is the largest in the euro area, with almost €1.8 trillion ($2.1 trillion) of assets under management as of the first quarter of 2025. It's embarking on a complex transition from so-called defined-benefit pensions to a new system involving defined contributions.
