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The Market Tanked, but Target Employees Kept Piling Money Into Their 401(k)s

'These turbulent economic times require that Target employees rely on the structured support of employer-sponsored retirement plans to maintain stability in their investment strategies,' says Wesley Boudreaux of The Retirement Group, a division of Wealth Enhancement Group. 'Discipline helps protect your financial future from market volatility.'

Financial experts say Target employees should strengthen their long-term investment strategies, particularly in target-date funds, since such plans will automatically adjust to their retirement goals, says Patrick Ray of The Retirement Group, a division of Wealth Enhancement Group. 'Keeping a course rather than reacting to short-term market shifts may be key to a financially secure retirement.'

In this article, we will discuss:

1. Economic Trends & Investor Behavior: Analyzing whether and how the recent economic downturn has affected investor activities, especially among 401(k) retirement plans, as well as the implications of preserving investment strategies during market fluctuations.

2. Financial Health & Consumer Behavior: Trends in personal savings, credit card debt and financial health of American consumers reported in recent studies and how they reflect broader economic conditions.

3. Future Financial Security Strategies: Looking at financial planning and the role of automatic saving features in 401(k) plans, and how to get professional financial advice about navigating economic uncertainty and preserving long-term financial security.

The 2022 Stress in America Study by the American Psychological Association found that money is the number one cause of stress for Americans—the highest level since 2015—according to the annual survey. That said, folks at Target should understand how this recent economic downturn has affected investor activity. The Federal Reserve says more than half of U.S. adults and their partners received non-labor income in 2020 from investments, interest, Social Security, and unemployment. As inflation grew and markets performed poorly, Americans could not just liquidate assets in their retirement accounts.

An estimated 90% of investors in 401(k)-style retirement plans administered by Vanguard Group kept or increased their savings rate in 2022. And trading among retail investors managing their own assets sank to a two-decade low. With the S&P 500 undergoing a yearly devaluation in proportions equal to 2008, retirement savers stayed away from selling assets and giving up long-term security. Target workers with 401(k) accounts continue to invest, save, and avoid emotional financial decisions.

American consumers are displaying signs of financial stress as personal savings rates drop and credit-card balances return to pre-pandemic levels. The 2022 Financial Health Network's Annual Financial Health Pulse Report found that 31% of Americans considered themselves financially healthy fell from 34% in 2021 to 31% in 2022. That said, unemployment is down 0.1% from last year's November-December rates, and hourly earnings for private-sector employees rose 4.6% through December 2021.

Data published in June by Vanguard shows 9% of workers with 401(k) accounts cut back on savings rates starting in 2021—up from 7% a year ago. Just 4% of investors managing their own 401(k) assets moved money from one fund to another last year—down 2% from 8% in 2021 and 4% from 10% in 2020. And people in Vanguard 401(k) plans held 74% of their assets in stocks—up 2% from 72% in 2020.

All things considered, people working for Target should understand that some of the investor tenacity to hang onto assets through market declines may be partly due to automatic features designed to remove obstacles to saving and investing. 58% of the plans that use Vanguard's services had target-date funds compared with 32% in 2012. Typically, target-date funds contain stocks and bonds partially indexed to an investor's age and projected retirement date at the time of opening the fund, called a 'glide path.'

A glide path is constructed so that a person can take a growth-oriented approach in his prime earning years and then save capital toward retirement age or 'target' year. Then most of those plans increase employees' savings rate by some percentage (usually 1%) every year up to a 10% limit or more. Behavioral economist and Nobel Prize-winning advocate for automatic 401(k) features Richard Thaler compares these advances to GPS driving. Thaler says such features let investors pick the right path and stay the course without overthinking.

And yet despite all this, people working for Target should also recognize that recent strong performance in the market may be reason to hold stocks longer. The S&P expresses an annualized return of 11.3% between 2019 - 2022 despite a 19.4% downturn in 2022. Dow Jones Market Data says that number exceeds the index's 5.8% annualized return since 1928.

Although the market performed well, not all metrics point to better retirement safety nets. In addition to growing early withdrawals from qualified retirement accounts and a 20% drop in the average 401(k) balance to USD 112,572 by 2022, more Americans struggled to keep up with financial emergencies and higher prices. Hardship distributions for things like preventing evictions and paying medical bills were record highs. Loan initiations climbed 9%. Taken together, employees at Target should contact a financial advisor to avoid the consequences above. If you plan properly, The Retirement Group customizes a retirement plan for you.

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Sources:

1. American Psychological Association. 'Stress in America 2022: Concerned by Inflation.' APA, 2022, www.apa.org/news/press/releases/stress/2022/concerned-future-inflation .

2. American Psychological Association. 'Money and Stress.' APA, 2022, www.apa.org/topics/stress/money .

3. American Psychological Association. 'Stress in America Report.' APA, 2022, www.apa.org/pubs/reports/stress-in-america .

4. American Psychological Association. 'Inflation, War, and Stress in 2022.' APA, 2022, www.apa.org/news/press/releases/2022/03/inflation-war-stress .

5. American Psychological Association. 'Speaking of Psychology: Financial Stress.' APA, 2022, www.apa.org/news/podcasts/speaking-of-psychology/financial-stress .

What are the key benefits provided by Target Corporation's Personal Pension Account and Traditional Plan for employees approaching retirement, and how do these plans ensure financial security during retirement years? Understanding the synergy between these two plans is essential for retirees, as they work together alongside Social Security and personal savings to replace a portion of an employee's paycheck after retirement.

Key Benefits of the Personal Pension Account and Traditional Plan: Target Corporation's pension plan includes two components: the Personal Pension Account and the Traditional Plan. These plans work in tandem to replace a portion of an employee's paycheck during retirement. The Personal Pension Account provides pay credits and interest that accumulate over time, while the Traditional Plan uses a final average pay formula. Together with Social Security and personal savings, these plans help ensure financial security in retirement(Target Corporation_Dece…).

How can employees elect different payment options, such as the Single Life Annuity or the Joint and Survivor Annuities, within Target Corporation's pension plans? It is crucial for employees to grasp not only the financial implications of these choices but also the necessary spousal consent required when designating a joint annuitant, particularly if the chosen joint annuitant is not the employee's spouse.

Payment Options and Spousal Consent: Employees can elect different payment options, including the Single Life Annuity, which provides the highest monthly benefit and ceases at the retiree’s death, or the Joint and Survivor Annuity, which continues payments to a surviving spouse. To elect a non-spouse as a joint annuitant, spousal consent is required, and this must be notarized to ensure compliance with plan rules(Target Corporation_Dece…).

In what circumstances might benefits not be paid under the Traditional Plan, and what steps can employees take to ensure they remain eligible for their pension benefits upon termination of employment? Target Corporation's policy outlines several scenarios where benefits could be denied, making it necessary for employees to be proactive in understanding their rights and responsibilities concerning plan participation.

Circumstances for Denial of Benefits under the Traditional Plan: Benefits under the Traditional Plan may not be paid if an employee leaves before becoming vested (less than three years of service). Employees should ensure they meet the vesting requirements and maintain eligibility by avoiding termination before they reach the minimum service period(Target Corporation_Dece…).

What procedures should employees follow to report changes in marital status, address, or beneficiaries to ensure compliance with the requirements of Target Corporation's pension plan? Employees must understand the importance of timely reporting these changes to avoid potential issues with their retirement benefits and ensure that their pension plan information remains up-to-date.

Reporting Changes in Marital Status or Beneficiaries: Employees must promptly report changes in marital status, address, or beneficiaries to Target's Benefits Center to ensure their pension records remain up-to-date. Failing to do so can lead to delays or issues in processing pension benefits(Target Corporation_Dece…).

How does Target Corporation determine the final average pay used to calculate retirement benefits under its pension plans, and what factors may affect this calculation? Employees nearing retirement should be fully informed about how their compensation is considered in determining their pension benefits, including aspects such as bonuses and overtime that may influence their final average pay calculation.

Final Average Pay Calculation: Target Corporation calculates final average pay based on the five highest years of earnings out of the last 10 years of service. This includes regular pay, overtime, bonuses, and commissions but excludes items like workers' compensation or long-term disability payments(Target Corporation_Dece…).

How can employees begin the process of rolling over their Target 401(k) accounts into the Pension Plan, and what advantages does this Pension Purchase Program offer? Understanding this rollover option is vital for maximizing retirement benefits, as it can provide employees with a stable income stream while avoiding unnecessary fees typically associated with purchasing annuities outside the plan.

Rolling Over 401(k) into the Pension Plan: Employees can roll over their 401(k) accounts into the Pension Plan using the Pension Purchase Program. This option offers several advantages, including avoiding fees associated with purchasing annuities outside the plan and receiving a stable income stream during retirement(Target Corporation_Dece…).

What are the implications of a participant's age and joint annuitant's age on the payment amounts under the various Joint and Survivor Annuity options at Target Corporation? Employees should be aware of how age differences can impact their pension payouts, as the specific percentages payable under these options may vary based on the ages of both the participant and their designated joint annuitant.

Effect of Participant and Joint Annuitant’s Age on Payments: The Joint and Survivor Annuity options are influenced by the ages of both the participant and the joint annuitant. The younger the joint annuitant, the lower the monthly payout due to actuarial adjustments. Employees should consider these factors when selecting an annuity option(Target Corporation_Dece…).

How are retirement benefits managed during potential plan terminations or amendments at Target Corporation, and what protections are in place for employees in these scenarios? Employees should be well-informed regarding their rights in the event of changes to the pension plan, including how benefits would be distributed and under what circumstances they may remain fully vested.

Plan Terminations or Amendments: In case of plan terminations or amendments, vested benefits are protected, and employees will receive their earned pension. If the plan is amended or terminated, Target ensures that vested benefits are distributed according to the plan's terms(Target Corporation_Dece…).

For employees retiring or leaving Target Corporation, what options are available with respect to unused vacation time and how might this be factored into pension calculations? Understanding how accrued time off translates into benefits could have a significant impact on an employee's financial positioning upon retirement.

Unused Vacation Time and Pension Calculations: Unused vacation time does not directly affect pension benefits but can be included in eligible earnings calculations that determine final average pay. Employees nearing retirement should consult with Target’s Benefits Center to understand how unused time may impact their overall benefits(Target Corporation_Dece…).

How can employees contact Target Corporation for assistance with their retirement benefits to address any questions or concerns they may have about their pension plans? Accessing the right resources and support is essential for employees to navigate their retirement benefits effectively. They can reach out to the Target Benefits Center at 800-828-5850 for more specific inquiries related to their personal circumstances. These questions aim to enhance employees' understanding of their retirement benefits, ensuring they are well-prepared for their transition into retirement.

Contacting Target for Pension Assistance: Employees can contact the Target Benefits Center at 800-828-5850 for assistance with their retirement and pension plans. This center provides support with any questions related to pension options, payments, and administrative requirements(Target Corporation_Dece…).

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For more information you can reach the plan administrator for Target at 10 South Dearborn Street 48th Floor Chicago, IL 60603; or by calling them at 1-800-440-0680.