Are you turning down free money from your employer?

If your employer offers a 401(k) and you aren’t taking advantage of it, you may be losing out on hundreds, or even thousands of dollars a month.

What is a 401(k)?

A 401(k) is a retirement account that is sometimes provided by your employer. Contributions made to a 401(k) are deducted from your paycheck before you pay any taxes. Many companies will match half of your contributions your make to a 401(k) and some may match 100% of your contributions.

A Very Simple Example

Let’s say you make $1000 a week and you have the opportunity to contribute to a 401(k). If you choose to contribute to your 401(k) and contribute 6% of your salary, you will put away $60 a week or $240 a month. If your employer matches up to 3% (half of your contribution), you will also get another $240 a month FOR FREE.

If you don’t choose to contribute to a 401(k) you could be losing thousands of dollars in free money a YEAR. Let’s take this example even further: let’s say you are missing out on $60 a year for 30 years if you stay at the same employer. Assuming an 8% rate of return that $240 a month of FREE MONEY will turn into over $350,000!!!

Should I contribute to my employer’s 401(k) plan?

The answer to this question will vary from person to person. My recommendation is this: if your employer matches contributions you make to a 401(k) you should ALWAYS contribute. The money that your employer is contributing is FREE MONEY. Would you turn down a bonus from your employer? If you choose not to contribute to your 401(k) that is what you are essentially doing.

Does your employer offer a 401(k) plan? Do you make contributions? Why or why not?


3 thoughts on “Are you turning down free money from your employer?

  1. I find it amazing that there is no compolsory form of forced retirement savings in the US (please correct me if I’m wrong here but that’s the vibe I get)..

    In Australia it’s been compolsory for employers to pay between 3 and 9%, it has now gone up to 9.5% of an employees salary into what they call a superannuation account.. To me while this may have increased the cost of goods, it is beneficial in the long run and reduces the reliance on the age pension upon retiring.. You should be contributing money to any retirement scheme I say

    • We actually do have a form of forced savings here in the US called social security. It is 6.2% paid by both the employee and employer, so 12.4% of your total salary. The thing with social security is that it doesn’t depend on the market so much, but is more structured like insurance or an annuity. I just read somewhere that the average “return” on social security is between 2 to 6%. The issue with social security is that we don’t have enough young people paying into it to support our growing retirement age population. A lot of people I know don’t really think it is a sustainable system and don’t plan on it being around. Even if it is, they still don’t plan on it being their main source of income. If anything it will just be a little extra money to spend in old age.

      Sorry I had a better response but accidently closed out the window. Thanks again for checking out my blog. I hope you enjoy it!

      • That’s completely cool, it is a real shame where that happens :O but never mind 🙂

        Yeah this is a massive issue here in Australia too, a lot of our baby boomers are starting to get older and the working population % is declining, which means the govt will be looking to cut out the age pension or the equivalent of “social security”..

        That’s why the importance of finances is becoming increasingly vital to supporting yourself

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