Lack Of A Match Keeping You Out Of Your 401(k)? Unfortunately, The Biggest Loser Is You.

401k match

A 401(k) employer match is a wonderful gift. But even without a match, contributing the most you can to your plan is a smart move.

Just yesterday, I was having a conversation with a friend I went to school with many years ago.

The conversation turned to kids, and he said his twenty-something daughter – justifiably proud to have landed her first professional job – was not participating in her company’s 401(k) because there was “no match.”

Sadly, I must hear this type of argument at least once per week.

Not only do I hear it from young professionals (who at least have youth and inexperience on their side), but I also hear it from 40 and 50-year olds who should know better.

So give me a minute to explain why shorting your company 401(k) plan is a huge mistake. The only person getting hurt is you.

Yes, we agree. Your employer should give you a match. When employers don’t chip in to the retirement plan, employees feel angry. By refusing to put in their own money, they somehow feel they are getting “even.” Wrong. You’re only hurting yourself.

A good employer should put some money into the plan, and in fact, the majority of employers do. Up to 1/2 of the average retirement account balance comes from the match. When it’s missing, you feel it where it counts. But not participating isn’t the right way to handle it. Talk to your employer and help them see how providing a match helps employee morale and retention. Last resort: switch employers. That match is equivalent to a significant annual tax-deferred bonus. Look for greener pastures elsewhere.

Reality check. The only one financing your retirement is you. If you skimp on your 401(k), you’re a few decades behind the times. News flash. Pensions are dead, at least for most of us. Social Security is nowhere near enough. The only thing that will pay the rent and put food on the table when you’re retired is your own savings. And for most people, those savings come straight from a 401(k) plan. It’s a new age; you better save for yourself, because no one else will.

Not contributing? You’re probably paying too much tax. Whether or not your employer contributes, your own tax-deferred 401(k) contributions give you a great tax break. For each $1 you put in your 401(k), the government is pitching in fifteen to forty cents in tax savings. Now that’s a match.

The 401(k) puts your savings on auto-pilot. By signing up for your workplace plan, you commit to a disciplined, automatic savings plan. Our experience is that most people – without that discipline – never get around to saving enough. So if you pass up your 401(k), and swear you’ll save somewhere else, the odds are you won’t. Plus, even if you do, you just can’t get enough money in. Traditional and Roth IRA contributions max out at $5,500 per year for the under-50 crowd, while a 401(k) permits much larger contributions up to $18,000 a year. That’s a difference between ending up with $989,000 in retirement, or $3,312,000. Your choice.

(*Assumptions: You’ll end up with $989,000 if you make the maximum annual IRA contribution from age 25 to 65, with catch-up contributions starting at age 50, and earn 6% annually on your investments. Make the maximum contributions to your 401(k), with catch-up contributions starting at age 50, and you’ll end up with $3,312,000.)

About Mari Adam

Mari Adam, Certified Financial Planner™ has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!


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