Rich Retirement

Hello Anita,

My new job has given me the opportunity to invest in their 401k, but I know little to nothing about the benefits. How does this really profit me, and is it worth the decrease in my monthly income? If I switch to a new job, what are my options with this 401k? I would like to know all of the reasons this investment would help or hinder me.

Dear, Planning for the Future,

First, congratulations on finding a job that truly cares about your future, as not every company offers this luxury. It is essential to prepare for retirement, no matter how far away it may seem. Many of us spend most of our life longing for the day when we no longer have to wake up at 6 am for yet another 8 hours in the office. However, once you retire, you will no longer have the steady income you have been used to for the past 30-plus years. You must start planning early in order to ensure that your finances after retirement do not mirror that of the penniless college student, and what better way to do this than with a 401(k)?

A 401(k) is an employer-provided retirement plan through which you deduct a portion of your paycheck into an investment account and, in many cases, your employer contributes as well. Below are a few ways this plan can better prepare you for the retirement you’ve always dreamed of:

  • Many employers match your contribution, putting their own money into your investment account. Typically, they will invest 50 cents for each dollar you put in, usually topping out at 6 percent of your overall income. Essentially, this is free money you really didn’t have to work for! Of course there is a catch: most companies will only match contributions if you input enough money of your own. There is also often a “vesting period,” requiring you to work a certain amount of time, typically 3 to 5 years, before you can keep your employer’s investment. Should you decide to leave your employer prior to fulfilling the vesting period, all or a portion of their contribution will be deducted from your account value. Companies vary in these requirements, so contact your Human Resources department for their specific prerequisites.
  • A 401(k) is a great way to reduce your taxable income. The money contributed to your 401(k) is untaxed, which lowers your overall income. Although at first this seems detrimental, a lower income potentially means a lower tax bracket, so you could end up paying fewer taxes to Uncle Sam. For example, if you typically receive $2,000 per paycheck and you put $100 dollars into your 401(k), you will only pay taxes on $1,900. Yet once again, there is a catch: the government charges a 10 percent early withdrawal penalty if you take any money out of your 401(k) account before the age of 59 ½, so try and wait until then. Even after 59 ½, they require you to pay taxes to retrieve your money, but at a smaller tax rate due to your lower income. Just don’t pull all of your money out at once, because what you take determines your “salary” and, consequently, your tax bracket.
  • 401kjpgThrough the years, your 401(k) builds continuously with compounding interest. In the beginning, you earn interest solely on your original investment, but afterward, you also earn interest on that interest. Although this amount may seem insignificant, over the years, it can grow exponentially. For example, if you invest $100 with an annual 10 percent interest rate, you’ll have $110 after one year. The next year, you earn interest on the $110, giving you $121 after Year 2. This keeps quickly growing and in the long run can mean big bucks. Now add the interest from your employer’s matching contribution, and your 401(k) could be rolling in the dough! Use this 401(k) calculator to determine how much your investment would return after a certain amount of time.
  • Your retirement plan is not necessarily lost when switching jobs. If your new employer has a 401(k), you can transfer the plan, but make sure the rollover checks are made out to your new plan administrator and not yourself; otherwise you may be susceptible to tax penalties. If your new employer does not have a 401(k), or has a waiting period for eligibility, most previous employers allow you to leave the money in their plan as long as you have a minimum $5,000  investment. If none of these options are available, you may open a rollover IRA at any bank or financial institution, allowing you to invest your funds in any stock or mutual fund. When thinking about leaving your job, take these options into consideration and contact your current and potential employer’s Human Resources department to arrange for your 401(k).

The money you put in your 401(k), and your employer’s matching contributions, can add up quickly. With the compounding interest gained from these investments, your retirement plan can grow exponentially. As long as you don’t take out money before the age limit, or all at once, your 401(k) can set you up for a fabulous future: one without an 8 to 5 job where you can still live life comfortably. So utilize this benefit wisely, and enjoy the after-retirement explorations and vacations that your planning has awarded you!

Keeping saving!

Anita

Bad Credit Can Cost You . . . Your New Job

Hi Anita,

I just came from a job interview where I was asked to sign a form permitting the company to run a credit check and I’m really worried this will cost me the job. I’ve been out of work for several months and have been living on my limited savings and credit cards (which have all been maxed out). I’ve paid many of my bills late and my credit scores continue to fall. Is there any way to fix the situation and not lose my chance on getting this job?

Dear, Concerned about Credit,

I certainly feel your pain. Getting rejected for employment based on your credit report begins a cycle where nobody wins: you lose a job, which hurts your credit, which prevents you from getting another job, which only pushes your credit further into the dumps.

Yikes!

In an effort to stop this insanity, state governments are starting to step in and restrict or prohibit employers from using credit reports in making hiring and other job decisions. Ten states have passed these laws so far, and more are considering similar legislation.

Key to SuccessThe Federal Fair Credit Reporting Act protects the privacy and accuracy of the information in your credit report, requiring employers to get your written permission to conduct the check. Can you refuse? Yes, you can. But you really don’t have much choice if you want the job.

So why are credit checks run in the first place? Well, it does make sense in some cases. For example, a company may not want an employee who never pays bills on time to manage a department budget, prepare economic forecasts, or have free access to a company credit card. Some employers firmly believe your credit report reflects your ability to be responsible and diligent – two attributes most companies like to see in their employees.

Let’s take a closer look at your dilemma. Late payments and maxing out your cards are definitely red flags. But the fact that prospective employers must get your consent before they pull your report at least gives you the opportunity to explain. Use it.

Now listen up… be proactive and honest. If you are, nine times out of ten, the interviewer will not see a low score as an indication that you’re irresponsible but rather as simply an indicator of your circumstances.

Think about it. Are most employers going to tell you that it was the credit report that caused them to hire someone else? It’s easier to find another excuse or not give one at all.

So tell me, dear readers, have you been turned down for a job and think it was the credit report that broke the deal?

Best wishes,
Anita

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Smoking: A Career Killer?

A reader writes…

Hi, Anita:

My co-workers and I were having a discussion over lunch about whether or not smoking can have an effect on your career potential. As a non-smoker, I think smoking not only affects your health but also how people perceive you as an employee. I would love to hear your thoughts on the topic. Thanks!

SmokingHi, Concerned Co-workers:

In my opinion, smoking can definitely have a negative effect on your career. According to a New York Times article, one in every five Americans smoke on a regular basis and, on average, employees who smoke cost employers $3,391 more a year for health care and lost productivity. If your company has 500 employees, this alone can cost almost $1.7 million a year. The Centers for Disease Control and Prevention estimates that cigarette smoking costs companies more than $193 billion (i.e., $97 billion in lost productivity plus $96 billion in health care expenditures).

Here are a few things to keep in mind when looking at the effects of smoking on your career or business.

  • The smell of cigarette smoke lingers on your clothing. People who do not smoke may be annoyed, repulsed, or dismissive of those who come in to the office smelling of stogies.
  • Smoking breaks can take a huge chunk of time out of the day. On average, it takes 3-5 minutes to smoke a cigarette. If you look at my post Time Theft: Is It Really a Crime? you can see how much in lost profits just two smoke breaks a day can amount to over the course of the year.
  • Smoking comes with its own set of negative connotations. Hiring employers or managers may view this habit as a red flag and think that the person is negligent or lazy.
  • Studies estimate that smokers are two to three times more often absent from work.
  • Smoking2Smoking may be deal breakers in a company’s hiring policy. More companies are adopting policies that stipulate that smokers will not be hired in states where it is legal to do so. If you are a smoker, you could be limiting your opportunities for hire or advancement. The Towers Watson survey found that 4% of companies have adopted such a policy and 2% more are expected to each year. In the same survey, 52% of companies banned smoking on office property, a number that’s expected to increase to 60% next year. Meanwhile, 42% of companies use surcharges for tobacco users at approximately $50/month to cover health care costs.

Smoking is not only bad for your health; it has the potential to kill your career.

See below for a great video on both sides of the issue:

Readers, what are your thoughts on this issue? Should employers be able to ban smoking at the workplace and be allowed to not hire someone because of their habit?

Best wishes,

Anita

Have a question you would like to ask? Visit http://anitaclew.com/ask-anita/.

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Putting a Stop to Stealing

A reader writes…

Hi, Anita:

Employee theft has become a topic of discussion lately at my company, as we are evaluating how to reduce costs and increase profitability. What tips do you have to help prevent and stop theft in the workplace?

Stealing 2Hi, Office Police:

Theft in the workplace costs businesses massive amounts of money every year. A package of pens here or there could seem pretty harmless, right? Wrong. If you start to think that your employees wouldn’t possibly steal from you, well think again.

American Databank estimates that:

  • Employee theft costs U.S. companies over $120 billion a year.
  • 95% of all companies are victims of theft.
  • Only 10% of employee theft is actually discovered.
  • Over 2 million crimes occur in the workplace annually.

These statistics are hard to swallow but are important to keep in mind when deciding to develop a stringent anti-theft policy. Here are my tips to help prevent these problems from even making their way into your workforce.

  • Conduct pre-employment screenings. This includes verifying experience, contacting references, conducting criminal background checks, and administering drug tests. As Stealinghard as it is to believe, up to 40% of information on applications and résumés is falsified or misrepresented. Companies like Select Staffing conduct extensive screenings before placing seekers on assignment with a client.
  • Develop and clearly post your zero-tolerance theft policy. Ensure that all employees are informed of your expectations and the consequences of stealing or ignoring theft by other co-workers.
  • Install surveillance cameras in areas that are prone to theft. These areas could include your supply/stock room, employee break room, parking lots, sales floor, or back office. These alone are a huge deterrent to thievery.
  • Implement several steps of controls and auditing into your standard routine. Have reports created and pulled that evaluate inventory levels and cash inflows/outflows.
  • Have auditors from an independent agency audit and evaluate your financial records.
  • Only hire bonded employees for positions where they will manage company finances and inventories. This will protect your company in the event of loss through the employee’s actions.

Employers and managers, what do you do to prevent theft in your place of business? Have you had to terminate an employee for stealing?

Best wishes,

Anita

Time Theft: Is It Really a Crime?

A reader writes…

Hi, Anita:

One of my co-workers always shows up to work right at 8:00 a.m. and clocks in. After she makes her mark on the time card, she is out the door to park her car in the lot down the street and then to the cafeteria to get breakfast. By the time she actually starts working, it is at least 30 minutes past. Is it just me or is there something seriously wrong with this picture?

Dear, Time Sensitive:Time

What a great question! This applies to everyone from employees and supervisors to managers and business owners. Your belief that this practice is unethical is spot on. The official term for this type of behavior is “time theft.” Time theft happens when an employee is paid by their employer for work that has not actually been done. Many people may not even know they are doing something wrong but, in reality, they are costing their employers thousands of dollars a year.

There are a few types of time theft that everyone should be aware of. Your employees, co-workers, and even you may be guilty of time crimes.

  • Time Clock Theft: Employees who do not show up for their scheduled shift and have a friend clock in for them are committing time card fraud. This can also include our reader’s co-worker who comes in to work and clocks in but gets to work later than the start of hershift. Most of us are not being paid just to be in the building. We are paid to work and produce results. Forging time sheets to show additional hours worked is another way that unethical employees are trying to cheat the system.
  • Excessive Personal Time: Most managers and employers understand that their employees have lives outside of their jobs that may require attention during work hours from time to time. But when this becomes a routine, that is where the time theft concern arises. Non-work-related calls, emails, personal discussions, and social networking are the primary time wasters that are making employers pay the price.
  • Over-Extended Breaks: Employees are due a break or two during their shift according to federal labor laws. The most common instances of time theft occur when employees either take more breaks than allotted during their shift, do not clock out for breaks that they take, or extend the break time without making up the time.
  • Using Sick Time Inappropriately: Sick time is set aside to help employees in the event that they are ill and cannot be at work. Sometimes, employees will use these days to receive pay when they are taking a personal day off.

For a better understanding of how much these small actions can affect your productivity and profitability, take a look at the following chart from Acroprint. It shows how much arriving even five minutes late and leaving five minutes early can cost employers on a typical, full-time (250-day) work year.

Number of employees

2

5

10

25

50

Hourly Pay

Cost/Minute

Profit Loss

$8.00

$0.1333

$1,333

$3,333

$6,667

$16,667

$33,333

$12.00

$0.20

$2,000

$5,000

$10,000

$25,000

$50,000

$15.00

$0.25

$2,500

$6,250

$12,500

$31,250

$62,500

As you can see, even a small bending of the time rules can cost employers thousands of dollars.

While I applaud you for doing the ethical thing and not committing time theft yourself, I do suggest that you keep your co-worker’s behavior to yourself. Eventually, your supervisor will catch on and the employee will have to face the consequences. It is best to only be concerned with your work ethic and your performance. These issues typically work themselves out in the end.

Readers, do you find time theft occurring in your workplace? What would you do if you noticed your co-workers bending or breaking the rules and committing time crimes?

Best wishes,

Anita

Have a question you would like to ask? Visit http://anitaclew.com/ask-anita/.

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Disclaimer

Anita Clew's blog posts are intended for general guidance and should never be taken as legal advice. In all instances where harassment, inequity, or unfair treatment is believed to be present, please consult your HR Department or legal representation.
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