The last stats I heard about employee participation indicated that over 30% of employees in the US are not enrolled in their company’s retirement plan. So, if you are one of them, this article is for you.
Video Intro
I remember when I first started this site, I was trying to think of the most important (and simple) steps to financial success that I wanted the world to know. One of them was how easy it is for many of us to get an amazing return on our 401k or 403bs.
The reason it is possible for so many of us is because most employers have some sort of matching program with their 401ks or 403bs. For example, my wife’s employer offers a 100% matching of her contributions up to 4% of her salary. So if she puts in $100 each paycheck, they put in $100 each paycheck – not bad! But if she puts $0 in, they put in $0.
Many employers across the nation have similar programs – not all offer 100% matching, but most offer some kind of incentive to contribute.
It is free money – find a way to get it
If your employer has a matching program and you are not contributing, you are passing up free money. While that is enticing, I know what it feels like to just not have the money to be able to contribute – believe me, I remember that feeling well. What I did to remedy that situation, was use my next raise to my advantage. So why not just take your next raise and contribute that amount to my 401k. That way, your take-home pay doesn’t change, but you start funding your retirement account without any pain!
You can get a good return in your 401k – even in a recession!
Over the last year or so my 401k has gone down in value – about 40% to be honest. And my wife’s 403b took a big hit as well. But if I look at how much I actually contributed into the plan, I am still very much in the positive!
For example, say I contributed $100, and my company matched it – now I have $200 in my account. If it goes down 40% (like it has) I still have $120 left – which is still a 20% return on my investment – even in this market! Not too bad at all…
So the point is if your employer has a matching program of any kind, it would be VERY wise to get involved!
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Hi bob,
I read your site daily, enjoy it, and respect your advice, but I just wanted to point out the reality some of us live in.
I work for one of the largest and most prestigious state university systems in the nation. I took a 10% pay cut a year and a half ago to come here from industry, because of the university’s reputation for job security, location (near my local church), and a very forward-thinking, fun, and competent team of co-workers.
Unfortunately, my employer has never matched 403(b) contributions, and raises were frozen the year I arrived (that would make this the second year without a raise for me).
My point being, your advice to count on raises seems almost flippant given the cutbacks many companies and organizations are making.
My wife and I live frugally (cook in bulk once a week, eat out once a week, don’t own a working television, only one car, don’t shop “for fun”) and thank God that we together earn enough to save for an emergency fund (we should hit the “six months’ expenses” mark by October), but with a desire to have children soon and a mortgage rate adjustment coming soon, it seems we’ll be saving for everything BUT retirement for the next few years. Kind of bums me out since I think this is a GREAT time to invest for the long-term.
Hi bob,
I think I was a little harsh.
My other point is, “during a recession” — as this post is titled — it’s not enough to count on others to help you out: in this case, employers with 401(k) matches and and raises.
We need to count on God, turning to Him in prayer and fasting and immersing ourselves in Scripture. And we need to make use of the gifts He’s given us, finding unconventional ways to increase one’s income, be it through freelancing, money-making hobbies, or finding creative ways to reduce expenses.
Stateworker,
you are right, many employers have been cutting back on raises – I know the feeling very well. I am not suggesting that any of us should “count on” raises now, or even in good times, that was actually just an aside from what the article was about. My point was that if you use increases in income – be it a raise, tax refund, second job, etc – to fund your retirements accounts, you won’t notice a change in your standard of living…
oh and you are right on about depending on God – we can sometimes forget that He is our true source!
My husband used to have a 100% 401k match up to 6% of his salary. It was awesome. They got rid of the match earlier this year so the company could save money. We’re hopeful that it will be reinstated at some point soon.
two other important points about matching funds from employers:
1) some companies require that one stay with the company for a certain amount of time (“vesting time”) before you actually can take that money in case you leave for another job (you will always be vested in your contributions – or at least you should be).
2) those matching funds are always considered pre-tax money even if you are contributing to a Roth 401k where your contributions are taxed (and gains are tax-free); the employer-matching money will be categorized as tax-deferred (ie. you will pay taxes when you withdraw the money in retirement).
My employer was matching 100% up to the first 6% that we contributed. However, the paycheck that I received today was the end of their contributions, as they are eliminating it for cost cutting purposes.
I suspect this will become more and more the norm.
I agree with Bob, Stateworker, & Pochax.
Here’s my spin…
I am not contributing to my 401K right now, neither is my wife contributing to her 403b, although we plan to eventually…here’s why:
We have $12,000 in consumer debt that we need to pay off ASAP, it is costing us more money than we could save in our retirement accounts.
My employer matches my 401K, but I’m only 20% vested per year after 3 years. I have been here almost 2 years, so it will be another 16 months before I am vested even 20%. At the end of that 16 months my consumer debt will be gone, and my contributions will receive some match.
Sometimes paying off debt is the most important way to save for retirement, which is the case for me…at least for the next 12 months…Lord willing.
Matt I agree – the benefit of lowering monthly expenses by paying off debts is a great one – I consider it more of a protection measure against job loss, etc
Bob,
Your blog has been a blessing to me and I enjoy reading your very informative articles. Therefore, I have given you the “Versatile Blog Award”. You can read all about it here: http://theblessedcouponer.com/2012/01/19/blessed-couponer-voted-versatile-blog-award/
Keep up the great work!
I enjoy your blog and am always looking for ways to improve our financial picture. I also believe the Lord is our ultimate provider. As far as employer matched funds for a retirement savings plan, my husband’s employer only matched up to 4%, but that ended several years ago, due to the fact that the company had to find ways to cut costs. If employer matched funds are available, it is a great return on your money.
I work at a Technical or 2 yr College. I have been contributing up to the match(which is currently 7% and may go to 7.5% in July 2013) for the past 9yrs. I addition for the past 8yrs. I’ve contributed to both a work ROTH IRA and 403b via Valu Teachers. Finally, I have been contributing to my Roth via a brokerage firm for the past 13 yrs. Not always to the max, but in 2008, 2009, and 2010 I contributed to the $5,000 max. It was during those years I didn’t have a car payment and used my part-time job, which I still work today, to max my ROTH account. I do have over $10,000 in CC debt and $1200 in medical expenses. Trying to get those paid down. I also need to get to $1,000 in my Emergency fund. I only have $150.
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