Did you fail to grab some cash last year?
Here’s the scoop on how many people left employer matches on the table last year. I read this study from Financial Engines and was astounded at the billions of dollars unclaimed.
What if you can’t set aside even the minimum for the employer match? Then what?
I would not be living up to this blog’s title, if I didn’t address this issue. Here are some reasons I’ve heard for not participating in an employer retirement plan:
- I can do better on my own. Really? Tell me about it then.
- The plan is too complicated. That could be true, but there is no excuse for not asking for guidance in order to figure it out. Sometimes the guidance, advice, information is free. Begin with your company resources, then go outside the company if their resources and/or people cannot help you make sense of it all.
- I don’t have enough money. If you are living in a basement, eating noodles and drinking Mountain Dews [for the calories] , this could be true. However, even 1% in the traditional 401(k) or federal thrift savings plan (TSP) will lower your taxable income and you might not miss it. At $15.00 per hour, or $30,000 per year gross income, let’s see what that looks like over 45 years (67-22) until retirement, with minimum salary increases (1% annually). See chart below:
|Current 401(k) balance||$0|
|Years to invest||45|
|Annual rate of return||7%|
|Expected annual salary increase||1%|
|Percent to contribute||1%|
|Your 401(k) contribution*||$300.00 per year|
|Your employer’s 401(k) match||$0.00 per year
This is a 0% employer match to a maximum of 0% of your annual salary.
|Total you will contribute over 45 years||$17,113.77|
|Total your employer will contribute||$0.00|
|Total at age 67||$100,836|
(chart constructed with Index of Retirement Calculator)
With minimal effort, while not making much money, you could save $100,836 for your future. Note: this example assumes an average annual return of 7%, which would mean not being in a bank account, but at least in a mutual fund composed of a combination of stocks and bonds. (Posted rate for illustration purposes only. Not FDIC insured…)