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Interview With Lauren Young of 'Smart Money'

Aired March 14, 2003 - 14:44   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


DARYN KAGAN, CNN ANCHOR: Well, the free money is over for employees of Charles Schwab. The company says it is going to stop matching contributions to workers' retirement plans, known commonly as 401(k)s. Some other big companies have done the same. It is tough times, they say, and they call for tough choices.
Lauren Young of "Smart Money" magazine joins us from New York -- Lauren, hello.

LAUREN YOUNG, "SMART MONEY": Hi, how are you?

PHILLIPS: Well, I'm doing OK. Better than some employees of Charles Schwab right now.

YOUNG: Absolutely.

KAGAN: First of all, for those not familiar, matching funds, explain how it works.

YOUNG: Well, 401(k)s really are the most popular kind of retirement tool. They were created about 20 years ago, and the way they work is that traditionally your company puts in something, and then you put in something, and sometimes companies will match you. For every dollar you put in, they'll put in a dollar. Sometimes they will put in 50 cents for every dollar you put in. But the bottom line is, the free money that comes from the company and the incentives is the match. And what's nice about 401(k)s is that they reduce your overall taxable income. So come April 15, you know, hopefully you are going to pay less in taxes.

KAGAN: Absolutely. And we should say, this is about the employees of Charles Schwab, if you have an online account or something, it doesn't apply to you there.

YOUNG: Exactly. Some people are confused about that.

KAGAN: But there are some other big companies doing the same thing, Goodyear, Ford, DaimlerChrysler. So this could be coming to a company near you very soon.

YOUNG: Right. I actually think this is a very, disturbing trend. You know, the match is a nice perk. Behind health care, in fact, one of the surveys done by a group called Principal Financial last December found that health care is the No. 1 perk, and retirement is No. 2, but it is a perk, and it's not surprising, the same way the companies are cutting back on health care, they are cutting back on the perks they are giving for people in retirement. KAGAN: Well, and here is the thing. As we said, it is tough times, and companies have to make a choice. Do they cut employees? Do they further cut health care? I think they have to decide where is it going to go, and maybe they feel like this is the most painless.

YOUNG: Right. And would you rather have a job, or would you rather have a job with a retirement plan? I think in these times, people would rather just have the job, but this is unfortunate.

Now, if you are affected and you think that your company might be cutting back on your matching, what can you do? One thing you can do is you can still contribute. You can contribute, depending on how much money you make and how old you are, there are all different kinds of breaks, but generally $12,000. For people under the age of 50, it's more.

So if your company is not contributing more, let's say you're putting in $6,000 a year, they are putting in $6,000 a year, you are going to have to put in that other $6,000 on your own, and believe me, people are very reticent to contribute to their 401(k). They don't get started. It takes them about three years in general to even contribute at all.

KAGAN: Right. But you would say still do it, because it's still pre-tax income.

YOUNG: Right. And it's one of the best things you can do. You can also open up an individual retirement account, the lingo in the industry is an IRA, but that really depends on how much money you make. And once you get about above 50 -- $60,000, you can't take that full deduction anyway, if you already work for a company that offers a retirement plan, like a 401(k). And just so you know the lingo, there's all different kinds of things. In the not for profit world, the same thing like a 401(k) is called a 401-3(b) (ph).

KAGAN: Got it. Hope there won't be a quiz on that in the morning. Probably want to talk to a human resources company -- representative at your company, and perhaps a financial adviser to figure out exactly what you should be doing.

YOUNG: That is great advice.

KAGAN: Well, thank you so much.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com







Aired March 14, 2003 - 14:44   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: Well, the free money is over for employees of Charles Schwab. The company says it is going to stop matching contributions to workers' retirement plans, known commonly as 401(k)s. Some other big companies have done the same. It is tough times, they say, and they call for tough choices.
Lauren Young of "Smart Money" magazine joins us from New York -- Lauren, hello.

LAUREN YOUNG, "SMART MONEY": Hi, how are you?

PHILLIPS: Well, I'm doing OK. Better than some employees of Charles Schwab right now.

YOUNG: Absolutely.

KAGAN: First of all, for those not familiar, matching funds, explain how it works.

YOUNG: Well, 401(k)s really are the most popular kind of retirement tool. They were created about 20 years ago, and the way they work is that traditionally your company puts in something, and then you put in something, and sometimes companies will match you. For every dollar you put in, they'll put in a dollar. Sometimes they will put in 50 cents for every dollar you put in. But the bottom line is, the free money that comes from the company and the incentives is the match. And what's nice about 401(k)s is that they reduce your overall taxable income. So come April 15, you know, hopefully you are going to pay less in taxes.

KAGAN: Absolutely. And we should say, this is about the employees of Charles Schwab, if you have an online account or something, it doesn't apply to you there.

YOUNG: Exactly. Some people are confused about that.

KAGAN: But there are some other big companies doing the same thing, Goodyear, Ford, DaimlerChrysler. So this could be coming to a company near you very soon.

YOUNG: Right. I actually think this is a very, disturbing trend. You know, the match is a nice perk. Behind health care, in fact, one of the surveys done by a group called Principal Financial last December found that health care is the No. 1 perk, and retirement is No. 2, but it is a perk, and it's not surprising, the same way the companies are cutting back on health care, they are cutting back on the perks they are giving for people in retirement. KAGAN: Well, and here is the thing. As we said, it is tough times, and companies have to make a choice. Do they cut employees? Do they further cut health care? I think they have to decide where is it going to go, and maybe they feel like this is the most painless.

YOUNG: Right. And would you rather have a job, or would you rather have a job with a retirement plan? I think in these times, people would rather just have the job, but this is unfortunate.

Now, if you are affected and you think that your company might be cutting back on your matching, what can you do? One thing you can do is you can still contribute. You can contribute, depending on how much money you make and how old you are, there are all different kinds of breaks, but generally $12,000. For people under the age of 50, it's more.

So if your company is not contributing more, let's say you're putting in $6,000 a year, they are putting in $6,000 a year, you are going to have to put in that other $6,000 on your own, and believe me, people are very reticent to contribute to their 401(k). They don't get started. It takes them about three years in general to even contribute at all.

KAGAN: Right. But you would say still do it, because it's still pre-tax income.

YOUNG: Right. And it's one of the best things you can do. You can also open up an individual retirement account, the lingo in the industry is an IRA, but that really depends on how much money you make. And once you get about above 50 -- $60,000, you can't take that full deduction anyway, if you already work for a company that offers a retirement plan, like a 401(k). And just so you know the lingo, there's all different kinds of things. In the not for profit world, the same thing like a 401(k) is called a 401-3(b) (ph).

KAGAN: Got it. Hope there won't be a quiz on that in the morning. Probably want to talk to a human resources company -- representative at your company, and perhaps a financial adviser to figure out exactly what you should be doing.

YOUNG: That is great advice.

KAGAN: Well, thank you so much.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com