Houston Estate Planning and Elder Law Attorney Blog
You’d think no one would want to turn down free money. Yet that’s exactly what many working Americans do!
One out of five Americans—20%—don’t take advantage of a terrific benefit: employee sponsored retirement savings accounts that include an employer match of some and sometimes all the employee’s contributions. Most workers do contribute more than enough to enjoy the benefits of their employer’s match, but what’s up with those 20%?
USA Today recently ran an article, “1 in 5 Americans are making a terrible 401(k) mistake” that says this may be one of the worst retirement mistakes you can make. While it may not look like a lot of money to ignore right now, you’d be surprised at the difference it can make when you retire.
About three-quarters of companies offering 401(k) retirement plans have some type of matching program, usually based on an employee's contributions and capped at a percentage of their salary. For example, a 401(k)-matching policy may be "50% of employee contributions, up to 6% of total compensation."
Therefore, if you earn $50,000 a year and contribute $3,000 to your 401(k) or 6% of your salary, your employer will contribute an additional $1,500 into your account.
But again, there are 20% of the participants who don't contribute enough to take full advantage of their employer match. Apart from cashing out your 401(k) and spending the money, this may be the worst retirement savings mistake you can make.
Your employer match is vitally important. The maximum contribution level your employer is willing to match, should be the least you put into your 401(k). If you don’t do this, it’s like turning down free money.
This happens frequently with younger people just beginning their careers. They may feel that if you're starting your first job with an employer-sponsored retirement account, it’s difficult to effectively reduce each of your paychecks by 5% or more to contribute to a retirement account.
However, many employers' 401(k) plans now have automatic enrollment for new hires, usually with a low contribution rate such as 2% or 3%. However, many people simply forget to make a change to up their contributions.
Think of these matching contributions are part of your salary package. If you aren’t contributing enough to qualify for the match, it’s as if your employer was offering you a raise—and you said, “No thanks!”
Reference: USA Today (February 12, 2018) “1 in 5 Americans are making a terrible 401(k) mistake”
You’d think no one would want to turn down free money. Yet that’s exactly what many working Americans do!
One out of five Americans—20%—don’t take advantage of a terrific benefit: employee sponsored retirement savings accounts that include an employer match of some and sometimes all the employee’s contributions. Most workers do contribute more than enough to enjoy the benefits of their employer’s match, but what’s up with those 20%?
USA Today recently ran an article, “1 in 5 Americans are making a terrible 401(k) mistake” that says this may be one of the worst retirement mistakes you can make. While it may not look like a lot of money to ignore right now, you’d be surprised at the difference it can make when you retire.
About three-quarters of companies offering 401(k) retirement plans have some type of matching program, usually based on an employee's contributions and capped at a percentage of their salary. For example, a 401(k)-matching policy may be "50% of employee contributions, up to 6% of total compensation."
Therefore, if you earn $50,000 a year and contribute $3,000 to your 401(k) or 6% of your salary, your employer will contribute an additional $1,500 into your account.
But again, there are 20% of the participants who don't contribute enough to take full advantage of their employer match. Apart from cashing out your 401(k) and spending the money, this may be the worst retirement savings mistake you can make.
Your employer match is vitally important. The maximum contribution level your employer is willing to match, should be the least you put into your 401(k). If you don’t do this, it’s like turning down free money.
This happens frequently with younger people just beginning their careers. They may feel that if you're starting your first job with an employer-sponsored retirement account, it’s difficult to effectively reduce each of your paychecks by 5% or more to contribute to a retirement account.
However, many employers' 401(k) plans now have automatic enrollment for new hires, usually with a low contribution rate such as 2% or 3%. However, many people simply forget to make a change to up their contributions.
Think of these matching contributions are part of your salary package. If you aren’t contributing enough to qualify for the match, it’s as if your employer was offering you a raise—and you said, “No thanks!”
Reference: USA Today (February 12, 2018) “1 in 5 Americans are making a terrible 401(k) mistake”