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Is Your 401(k) Going to Take a Shot?

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Have you heard the news? Starbucks is cutting its 401(k) match. The coffee giant isn’t alone—Fed Ex and Motorola said they’ll freeze contributions for now, and I’m sure more will come.

I know it’s a surprise to a lot of us. After all, the Seattle-based  Starbucks made its reputation on great benefits in addition to great coffee (although opinion is certainly divided on that).

So my friends, no, this is not great news. And this is further proof that this is not a great economy—for you, for companies, for our international competitiveness.

So here’s the skinny (latte) on Starbucks. They are moving from a fixed 401(k) match to a discretionary one. In other words, they can decide how much they want to match and even if they want to match. Operating at half-caf, they’ve closed 600 stores, tightened up the products on the menu, and even cut the workforce.

What does this retirement quagmire mean for Starbucks employees? For starters, it means they need to find other ways to fund their retirement to make up the difference.

The thing is, you and I could have easily spotted that Starbucks wasn’t doing so hot just by keeping our ear to the streets. I noticed stores in my neighborhood started shutting down. And sure, there were still three on every block, but that fourth one was being closed.

Which makes you think—do they really need that many stores so close together? Isn’t it bad at some point to have too many stores? Of course it is! You start to cannibalize and compete with your own stores. So if you’d noticed this, you would’ve known the company was struggling before the analysts figured it out. That’s what WeSeed is all about: using the power and passion of community to get the jump on Wall Street.

But back to your 401(k) issue: a shot of espresso might get you through the day, but you’re crazy not to be percolating your 401(k). Some companies match 50 cents for every dollar you save up to a certain amount; others may be a full $1 for $1 match. It’s free money on the table, and it’s why I always say you have to, have to, have to save in your 401(k) up to at least the amount your company matches. (I’ll never forget the woman who told me she hadn’t saved in her 401(k) because she “just couldn’t get to it.” Please don’t do that.)

So, what should you do?

  • Max-Out Your 401(k)—The typical person saves about $3,000 in her 401(k), but did you know you can contribute up to $15,500 this year? You should take full advantage of it, right now. This is money that grows tax-free. And if your company matches, that will surely help you regain your losses. Get it done, friends. Call your HR department now.
  • Watch Company Stock—Remember Enron? Its 21,000 employees had more than $1 billion of the money that was invested in their 401(k) plan put in the company’s stock. The shares had quadrupled in value, everyone thought things were great, then, poof—they were worth only 26 cents a share. The stock was given as their 401(k) match instead of actual dollars.
  • Watch the Vesting—You probably didn’t know this (and it was a shock when I found out) but many companies have a “vesting period”—meaning that you need to work at the company for a while, typically five or six years, in order to get that free matching money. Sometimes they’ll give you some portion on a graduated scale. So the key here is to either stay with your job if you’re close to vesting, or ask them to fully vest your 401(k) if your job is getting cut.
  • Save Beyond Your 401(k)—If you want to retire in style, you’ll need a boatload of money or a nice pension. To give you an idea, if you want $50,000 in annual income, you’d need a nest egg of about $1 million. Now, don’t get alarmed. Just do everything you can to invest wisely and start taking responsibility. You can learn how at WeSeed.

By Jennifer Openshaw, co-founder and president of WeSeed

Photo courtesy of WeSeed


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