An increasing number of retirees and pre-retirees are discovering that they have to continue working past their targeted retirement dates. The reason? They just don't have enough money saved to retire comfortably. Various circumstances can contribute to underfunded retirement accounts, including failing to begin saving early enough, making insufficient monetary contributions over the years and poor market performance of the investments selected. (For background reading, see Five Ways To Lose Your Nest Egg.)

One of the best ways to ensure that you are adequately prepared to retire is to take advantage of your employer's benefits program. Read on to find out what might be available and how it can help you save more for retirement.

Choose Your Job by Its Benefits Program
When looking for a job, people often focus on finding the job that pays the most. But, unless the difference in pay is significant, more pay does not always determine the best job offer. When considering a job offer, it is important to consider the entire package; this includes salary, medical and dental benefits, insurance coverage and the retirement plans under which an employee would be covered.

The Cafeteria Program
Choosing the employer with the better cafeteria plan benefits may mean fewer out-of-pocket expenses for medical and dental needs as well as better insurance protection for your dependents. Cafeteria plans include benefits such as:

For employees, lower out-of-pocket expenses means more disposable funds - these can be added to your retirement nest egg, boosting your retirement savings. (For more insight, see Failing Health Could Drain Your Retirement Savings.)

The Retirement Program
The retirement plans program is an important part of your compensation package and could determine the lifestyle you can afford during your retirement years. When reviewing the retirement plans for potential employers, consider the following:

  • Higher Salary Vs. Retirement Plan
    An employer that does not offer a retirement plan might not be worth considering, unless the salary being offered is such that it will allow you to comfortably add contributions to your nest egg. These contributions should be comparable to those offered by other companies with a retirement plan. For instance: If potential employer A allows you to defer $16,500 to your 401(k) plan on a pretax basis and provides you with a matching contribution, while potential employer B does not offer a retirement program but offers a higher salary, consider whether the higher salary is such that it allows you to add $16,500 to your nest egg, plus any amount you would receive for matching contributions, profit-sharing contributions and the income tax that you would save through salary deferral. The results of your assessment should make the choice an easy one. (To learn more, read Retirement Planning: Building A Nest Egg.)
  • Defined Contribution Vs. Defined Benefit Plan
    If potential employer A offers a 401(k) plan and potential employer B offers a defined-benefit plan, employer B is often the better choice. With a defined-benefit plan, your plan benefits are not affected by market performance. Instead, investment risks are borne by your employer, and - unless your employer files for bankruptcy and is unable to fund the plan - your pension is guaranteed. Some may argue that by nature, defined-benefit plans are risky given the probability of the employer being unable to fund the plan. However, these plans are protected by the Pension Benefit Guaranty Corporation (PBGC), and while your benefits may be reduced, you are guaranteed to receive a minimum percentage of your promised benefits. (For more on this, seeThe Pension Benefit Guaranty Corporation Rescues Plans and Is Your Defined-Benefit Pension Plan Safe?) With a 401(k) plan, you accept responsibility for the investment risks and potential losses due to market fluctuations.
  • Choosing Between Two Defined-Contribution Plans
    If you are trying to choose between two employers that offer defined-contribution plans, look for the following features:

    • Guaranteed Contributions: Money-purchase pension plans and target-benefit plans include guaranteed contribution features. As such, the employer is mandated to make contributions to the plan each year for as long as the plan is maintained or be subject to stiff penalties. Profit-sharing plans often include discretionary contribution features, which mean that the employer is not required to fund the plan each year. This makes the money-purchase and target-benefit plans more attractive than a profit-sharing plan. There are exceptions to this general rule, as an employer does have the option to include a mandatory contribution feature in its profit sharing.

    • Salary Deferral and Matching Contributions: If both plans include a salary deferral feature, check to see if there is a cap on the amount that can be deferred, other than the statutory limit. For instance, the employer may limit deferrals to 10% of compensation. If that is what you will be deferring anyway, it is not an issue, but if you would like to defer more than that amount, the plan may be too restrictive for your retirement needs. Check for matching contributions as well, to see which plan offers the higher matching contribution amount. (To learn more, read Making Salary Deferral Contributions – Part 1 and Part 2.)

  • Choosing Between a Qualified Plan and an IRA-Based Plan
    Qualified plans usually include distribution-restriction features that may force you to leave the funds untouched until you retire or change employers. This can be a good feature because it prevents the removal of funds from the nest egg for non-necessities. IRA-based plans, such as SEP IRAs and SIMPLE IRAs, have no distribution restrictions, which means that withdrawals from the fund are allowed. Other features, such as contribution limits and creditor protection, should be considered if you need to choose between the two.

If you are weighing two employers and neither one offers a retirement program, you can consider looking elsewhere, or determine whether the compensation package will allow you to fund your own retirement accounts, such as Traditional IRAs, Roth IRAs, tax-deferred annuities and other savings programs. (For more on choosing retirement plans, see Which Retirement Plan Is Best?)

A mistake that is often made by job hunters is to focus on salary, but bear in mind that your total compensation is not limited to your salary. Consideration must be given to benefits such as cafeteria and retirement benefits. If you want to get a good understanding of a potential employer's benefits package, ask for a copy of its summary plan description (SPD). SPDs are usually provided to current or former employees and beneficiaries; however, if this employer has a good package and you are an impressive candidate, the employer may be willing to make an exception on your behalf.

Related Articles
  1. Savings

    5 Ways To Lose Your Retirement Nest Egg

    These common mistakes can put your savings at risk. Find out how to avoid them.
  2. Retirement

    Boomers: Twisting The Retirement Mindset

    This generation must take a whole new approach to post-work planning.
  3. Professionals

    5 Career-Killing Facebook Mistakes

    Facebook might be a great way to show off those cute pics from your vacation -- but your page isn’t so great if it hurts your career.
  4. Investing

    2 Common Ways to Misuse Target Date Funds

    The world of asset classes is just as complicated as taking vitamins. How much should you take of small caps? Intermediate bonds? Emerging market stocks?
  5. Mutual Funds & ETFs

    What Target-Date Funds Can Teach About Investing

    Target-date funds are a popular way to invest for retirement. Here's what they can teach the novice investor.
  6. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  7. Professionals

    How to Protect Retirement and Help Adult Kids

    Parents can both protect their retirement money and help their adult kids. Here's how.
  8. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  9. Investing

    How To Create a Winning Elevator Pitch

    Whether you are talking to potential investors, partners, customers or employees, the skill of being able to concisely summarize your business is critical.
  10. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  1. Are Cafeteria plans taxable?

    Whether the benefits you receive through your employer-sponsored cafeteria plan are taxable depends entirely on which benefits ... Read Full Answer >>
  2. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  3. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  4. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  5. How can I determine if a longevity annuity is right for me?

    A longevity annuity may be right for an individual if, based on his current health and a family history of longevity, he ... Read Full Answer >>
  6. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!