The maximum for 401(k) contributions is rising to $18,000 next year, according to the Society for Human Resource Management. HR professionals should do what they can to explain to employees what this means for their retirement plans. For example, if someone earns enough to max out his or her contribution, then that person may lose matching benefits he or she might otherwise want to keep. Therefore, some people may choose to reduce their 401(k) monthly allocations to avoid meeting $18,000. Others will likely want to try reaching the maximum $18,000 per year in order to more fully enrich their retirement nest egg.
Keep in mind the previous maximum was $17,500 so the gain is only $500. Defined contribution from employers has grown by an extra $1,000, however, from $52,000 to $53,000.
The changes are incremental and go along with the renewed sense of hope now the recession is over. People have been more focused on their retirement plans since 2008's housing bubble crashed, sending many people's home values to record lows and harming many savings funds.
For those who still use defined benefit plans instead of defined contribution plans, the maximum annual benefit remains capped at $210,000.
Investing in a retirement plan
Many millennials grew up without much of an education in investing their money, according to Market Watch. As such, it would help to remind the younger employees that it is very important to build a retirement fund as early as possible and put money into it every month from unused portions of a paycheck.
Without planning for retirement, people will quickly find that they will have to work more years than they'd planned previously because everything will cost more due to inflation. Additionally, USA Today reported that about 43 percent of workers feel unprepared for retirement. A separate USA Today article says that those who depend on social security for their entire retirement plans may face difficulties.
This year, the benefits for those who are going to receive the money will grow by 1.7 percent due to rising inflation. People who have social security benefits and very little else can face a challenge supporting themselves because they will have to live on a fixed income. Many will need a part-time job or find some other way of making an earning that will still let them live in relative retirement.
The converse would be someone who has a healthy savings fund but doesn't realize he or she qualifies for social security benefits. Some people don't realize that the money they get from social security can go up for as long as they wait to collect. For example, the increases can be anywhere from 6 to 8 percent for each year that someone delays. Delaying your start date for social security benefits can mean someone could earn up to $100,000 a year, USA Today reported.
Another consideration for social security is that the U.S. imposes a limit on benefits-related earnings that are subject to taxation. In 2014, this limit was $117,000, but it will rise to $118,500 in 2015 to account for inflation. Employers can eliminate any confusion associated with these benefits details by making the information easily accessible to employees whenever they need it.