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How To Help Your Clients Maximize Their 401(k) Contributions
Switching jobs and forgetting taxes are the two biggest hurdles
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Happy Sunday everyone, and welcome to Benzinga’s financial advisor newsletter.
Today we’re discussing how to best help clients maximize their retirement savings early, including a couple of tricks to make it seem more relevant to young clients especially.
So, let’s get into the Industry Chatter!
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INDUSTRY CHATTER
10% of their paycheck, acknowledging that while this isn't enough long-term, it allows for other financial priorities like student loan payments and home purchases. She advocates increasing contributions by one percentage point annually, especially after pay raises.
Emphasizing the tax benefits today of saving in a 401(k) account tomorrow resonates with her clients.
Another way to motivate clients that advisors suggest includes stressing the importance of capturing employer matching contributions. Brett Bernstein of XML Financial Group emphasizes this "free money" shouldn't be left on the table and recommends maintaining a holistic financial plan to determine appropriate contribution levels.
Default Savings Rate Are Not Enough
Current regulations require new 401(k) plans to automatically enroll employees at 3% with annual one-point increases until reaching 10%. However, advisors suggest this baseline is insufficient. Todd Feder from Girard recommends employers raise the base rate to 6% and increase the annual bump to 2%, though many established plans resist such changes.
Job changes present a particular challenge to retirement savings. A Vanguard study reveals that workers changing jobs every five years often inadvertently reduce their retirement savings by defaulting to lower contribution rates at new employers. This pattern could cost up to $300,000 in retirement wealth over a 40-year career.
Pitfalls Of Switching Jobs
Elizabeth Madonna of Madonna Money Management emphasizes the importance of advisor involvement during job transitions. She recommends immediate consultation when clients change jobs to ensure proper enrollment and contribution levels at the new employer. She advocates starting at 6% or higher when possible and implementing automatic annual increases.
For optimal results, advisors should regularly review client contribution strategies, especially during career transitions, and help clients balance retirement savings with other financial goals while maximizing available employer benefits and emphasizing tax and other advantages that accrue today for saving for the future.
MARKET RECAP
With the presidential election just two weeks away, investor risk appetite is taking a pause, resulting in a broadly flat week for Wall Street. Election uncertainty continues to loom large among investors as concerns persist over fiscal policies and potential trade disruptions due to tariffs.
Treasury yields rose further during the week, reflecting growing expectations that regardless of the election outcome, the next administration may struggle to enact stricter fiscal measures.
Adding to the cautious mood, the International Monetary Fund issued warnings on the long-term trajectory of U.S. national debt.
The S&P 500, as tracked by the SPDR S&P 500 ETF Trust (SPY), endured three consecutive losing sessions before rebounding slightly to end the week, as strong earnings reinforced the view that corporate America remains resilient.
Tesla Inc. (TSLA) was the standout in earnings this week, with investors cheering after the company announced plans to launch more affordable models by the first half of 2025. Shares of Tesla surged 21% on Thursday, marking the stock’s biggest single-day gain since May 2013.
Looking ahead, the spotlight turns to next week's earnings from five of the Magnificent Seven: Alphabet Inc. (GOOGL/GOOG), Microsoft Corp. (MSFT), Meta Platforms Inc. (META), Amazon.com Inc. (AMZN) and Apple Inc. (AAPL)— as well as official October labor market statistics.
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Musk's Wealth Surges
Elon Musk's fortune skyrocketed by $33.5 billion in one day following Tesla's stock rally that boosted its valuation by nearly $150 billion. This impressive market performance underscores investors' renewed optimism in Tesla's future growth and dominance in the EV sector.
Boeing Strike Continues
Boeing Co. (BA) machinists rejected a proposed 3.5% wage hike, prolonging their five-week strike. The ongoing labor dispute compounds Boeing’s financial struggles, with the company already facing a $6 billion loss and significant cash burn as it seeks to resolve worker grievances.
GM Earnings Impress
General Motors Co. (GM) reported better-than-expected third-quarter earnings, with revenue and EPS surpassing forecasts. Buoyed by strong consumer demand, the company raised its annual profit outlook, reinforcing its growth momentum and financial resilience. Shares rallied over 7%.
Holiday Spending Outlook
U.S. shoppers plan to spend $2,100 this holiday season, up 7% from 2023, according to a Bank of America survey. The increase signals robust consumer confidence, brightening the outlook for retail stocks, as gauged by the SPDR S&P Retail ETF (XRT). Historical trends suggest they usually outperform after the holiday season.
THE WEEK AHEAD
Economic Data
Monday: Japan unemployment rate
Tuesday: US consumer confidence and job openings
Wednesday: US preliminary quarterly GDP, EU quarterly GDP
Thursday: US and EU core inflation numbers
Friday: US nonfarm payroll numbers
Earnings
Click here for the full calendar of economic data and earnings reports.
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