What’s the first thing you looked forward to after landing your first job?
Getting that first paycheck, right?
And what’s the first thing your parents likely told you to do with that paycheck? Put it into the bank. Save that money for a rainy day. You’ll get married some day, or perhaps you’ll want to retire comfortably.
And then you got that note from Human Resources that said, “Congratulations! You’re now eligible to participate in the company’s 401(k) retirement savings plan!”
So what did you do, hotshot?
Money for Life:
Turn Your IRA and 401(k)
Into a Lifetime Retirement Paycheck
Well, if you were smart, you jumped at the chance to be a millionaire later in life and signed right up.
Some companies even have a “company match”, where they will contribute some amount of matching dollars up to a certain percentage of your contribution. For example, for every $1 you put into the plan (up to the first 3% of your contribution), the company may kick in an extra $0.25. So if you put in $100 per month, the company would throw in $25 for a grand total of $125.
It’s FREE MONEY, no matter how you look at it. Why WOULDN’T you want to … at the very least … contribute that base 3% in order to MAXIMIZE YOUR EMPLOYER’S CONTRIBUTIONS?
Well, it ends up that NOT EVERYBODY TAKES FULL ADVANTAGE OF WHAT THEIR COMPANIES ARE OFFERING, and those people are LEAVING MONEY ON THE TABLE.
Money that’s FREE. Just there for the taking.
That’s what TIAA-CREF found out when they surveyed people about whether they participated in a plan that had matching employer dollars or not.
- 78% of those who can participate in a 401K that has matching funds, do participate. That means there are 22% of people who are NOT participating in this Free Money Giveaway or properly planning for retirement.
- 77% of those who are participating are taking FULL ADVANTAGE of that employer match. Good for them!
But let’s break that down a little bit:
- 82% of men who invest in a 401K get the full match
- 72% of women who invest in a 401K contribute enough to get a full match
- Of those earning less than $35,000 per year, only 64% of participants are contributing enough to get the full match
So while it may seem obvious, a no-brainer, to participate in a 401(k) plan where you’re getting PAID TO SAVE MONEY, that isn’t necessarily true for everyone.
There are still a huge number of workers who clearly aren’t saving enough, whether that be for deliberate “we need the money right now” reasons, or because they don’t fully understand what a 401k is.
Do yourself a favor: if your company offers a 401(k) plan, ask if it does matching contributions. If it does, then RUN to the HR department and do what you can to enroll immediately, at the very least with the minimum contribution needed to guarantee the full matching amount. You’ll thank us for encouraging you to do this in about… say, 30 years from now.