Five Minute Friday: DHG's 401k Plan

dhg impact logoIn this Five Minute Friday podcast, Sarah Paris, a financial advisor with DHG Wealth Advisors, highlights DHG's 401k profit sharing plan and what makes it unique. Sarah discusses DHG's focus on financial health for its people and the importance of preparing for the future.




AGH: Hello everyone and welcome back to another episode of our DHG Podcast Series. I’m Alice Grey Harrison, your host and I’m here for another installment of our Five Minute Friday, which we highlight different DHG benefits and bring in guest speakers. Today I have with me Sarah Paris. She is a financial advisor with DHG Wealth Advisors. Welcome Sarah.

SP: Thanks Alice Grey.

AGH: I’m going to do a quick overview of our 401k plan and then I’m going to pick your brain with some questions.

SP: Sounds good

AGH: Our 401k plan is a profit sharing plan and regardless of whether you make contributions, you are eligible to receive the firm’s profit share, which is really, really fantastic. You’re eligible on your first day of employment so there is no wait, which is really something special and different, and in the past year, we’ve shortened our vesting schedule to a three year cliff vesting schedule. So once you work a thousand hours in a three plan year, you’re 100% vested and that’s really great. A few things that I personally like about our plan is that everything is online. It’s through Vanguard and it’s really easy to make changes. The other thing is that you can set it to automatically increase and that is super helpful for someone like me who is a communicator and not a numbers cruncher! It automatically increases. Just as life continuous to grow and so does what I’m investing. I don’t even have to think about it.

SP: It’s a fantastic feature.

AGH: It is, it’s really great. So let me ask you a few questions. Why do we provide profit sharing instead of a match like some firms do?

SP: That’s a great question, Alice Grey. By using a profit sharing feature in lieu of a match, DHG is able to provide all eligible participants with a full contribution regardless of how much that participant is contributing to their account. For example, in plans that provide a 50% match for participant contributions, a participant would need to contribute 6% of their own salary in order to receive a 3% match. For DHG’s profit sharing plan, no contribution is required from the participant in order to receive the full profit sharing contribution. For the plan year that began June 1, 2016, which is the plan year we’re currently in, DHG’s profit sharing contributions to participant accounts will be 3%. That is always reviewed annually based on the firm’s fiscal year and the firm determines what profit sharing percentage will be contributed.

AGH: It sounds like DHG really cares about my financial health and preparing for the future.

SP: I would agree, absolutely.

AGH: So if DHG is going to share profit with me regardless of whether I participate, why should I participate?

SP: Well that’s another great question. Company sponsored retirement plans like a 401k plan offer folks the greatest allowance for saving for retirement. So for example in 2016, an individual can save up to $18,000 from their salary into a 401k, versus they could save $5,500 in an IRA. If you’re over 50, you get to make a catch up contribution. In a 401k plan that’s $6,000 a year, versus only $1,000 in an IRA. So that’s a pretty substantial difference. Plus the DHG plan offers two options for saving, so one is the traditional tax deferred option wherein you don’t pay taxes on the money contributed and that money continuous to grow tax deferred until you withdraw it in retirement. But the DHG plan also offers a Roth option, in which you pay taxes on the money before it’s contributed but then all of the growth in earnings are tax free. So not only can you save more in a 401k plan, but our plan allows you to choose from either traditional or Roth or a combination of the two.

AGH: So it really gives you flexibility for what’s right for you financially.

SP: Absolutely.

AGH: So I’ve always heard, since day one of my career, “Start investing, start investing.” So why is it so important to invest early in your career?

SP: Most experts agree that you will need anywhere from 70% to 90% of your pre-retirement income to maintain your standard of living when you stop working. The earlier you start saving, the more your money grows and that’s because of one thing: compounding. To break it down into simplest terms, when you save money it earns interest. Then you earn additional interest on the money you originally put in plus on the interest you’ve accumulated. That’s compounding and it can make your wealth grow exponentially faster over time. Let me give you a hypothetical example.

AGH: Okay.

SP: Say you contributed $5,000 a year to a 401k for 10 years and let’s just assume that you’re investment earned 8% a year and all investment earnings were reinvested in your account. Depending on how old you are when you make those contributions, you would see very different amounts at age 65 when you retire. So if you started saving at age 25, stopped at 35, well when you retire at 65 your account would be worth $787,000. If you started saving at 35 and stopped at 45, your account would be worth $364,000.

AGH: Less than half.

SP: Exactly and if you started at age 45 and stopped at 55, its value would only be about $170,000 and if you waited to start saving until age 65.

AGH: You’re out of luck.

SP: Yeah, you’d have $78,000 when you retire so you can…

AGH: You’re not retiring.

SP: Exactly, so you can see the difference that starting early makes.

AGH: Absolutely, wow that really does make me feel like I need to go up my 401k. So, thinking of the future, what’s the one piece of advice that you would give regarding financial planning?

SP: My one piece of advice would be to actually have a plan. We’ve just shared an example of how saving earlier can have a huge impact on your ability to retire successfully and so certainly having a plan to get you to your long term goals is important. But there’s a lot to navigate financially along the way, like saving for a first home, or paying off loans, or having children. So when you have a plan in place, you’re prepared and you can make thoughtful and intentional decisions. When you don’t have a plan, you’re constantly reacting in that can lead to bad decision making.

AGH: And in life as well, right?

SP: Yes.

AGH: Plan, plan, plan.

SP: There you go.

AGH: Well Sarah thank you so much for taking a minute with us today.

SP: Oh thank you Alice Grey, it was my pleasure.

AGH: And thank you all for listening to Life at DHG, our premier podcast series. If you like what you just heard, we hope you’ll tell your friends and colleagues. Be sure to check out our DHG blog for more great stories about our Life Beyond Numbers. Join us next time for another edition of Life at DHG.

© Dixon Hughes Goodman LLP. All rights reserved.
DHG is registered in the U.S. Patent and Trademark Office to Dixon Hughes Goodman LLP.