I know of very few retirees that couldn’t use an additional $1,300 per year. But to a certain degree, a lot of young people today are throwing away the opportunity to do just that.
Their failure to take advantage of what is essentially free money is
putting them in a position where they’ll have much less during their
retirement years than they would have if they just made one simple
decision during their working years.
Let me explain.
A recent study by the well-respected financial firm, Financial Engines,
estimated that nearly one out of four participants in 401(k) programs do
not contribute enough into their program to receive the maximum
Financial Engines estimated that, by not contributing enough to receive
the maximum employer match, Americans leave a staggering $24 billion on
the table each and every year.
That averages out to $1,300 per person for those employees who are not
taking full advantage of the employer match. As I said, I don’t know too
many retirees who couldn’t use that extra cash.
Retirement plans can vary from company to company, but with a typical
401(k) retirement plan, the employer matches the employee’s contribution
dollar for dollar up to a maximum percentage. Generally the maximum is 5
percent of the employee’s pay.
So if an employee earned $30,000 and he or she contributed 5 percent of
their pay, their annual contribution would be $1,500. Throw in the
$1,500 employer match and you’ve got $3,000.
Using this example, if the employee only contributed $1,000 over the
course of a year, the employer would only match $1,000. In other words,
the employee failed to collect an extra $500 of “free” money.
Unfortunately, nearly 25 percent of employees are failing to participate
to the max and are therefore leaving dollars on the table.
But the study didn’t stop there. It also determined that more than 40
percent of those who miss out on the match earn less than $40,000.
That’s unfortunate, but understandable. Those earners likely need every
possible dollar for the cost of living.
What really shocked me, however, was that 10 percent of those who don’t
take full advantage of the match earn in excess of $100,000 annually.
Even sadder was that the largest segment of those missing out on the
match are under 30.
Why aren’t younger employees participating? Well, perhaps retirement
seems like a lifetime away. Maybe they’re burdened by college loans. Or
it could just be a lack of financial education.
That being said, the bottom line is the financial services industry has
to do a better job helping young people understand the importance of
saving early in their careers.
But families also need to discuss money issues. Families need to lay the
foundation for good and prudent money management at an early age. In my
experience, many are reluctant to discuss financial issues with their
Talking to adult children about money is one of the topics I’ll discuss
at the Healthy, Wealthy and Wise program sponsored by the Society for
Lifetime Planning this coming Tuesday. For details and reservations,
During your working years, leaving employer-matched money on the table
is a mistake. During your retirement years, not discussing money issues
with family members can also lead to poor money decisions by your
children, even into adulthood.