Author Topic: Husbands coworker doesn't contribute to 401k...missing out on 4% match  (Read 11342 times)

gluskap

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I can't believe that there is someone that doesn't contribute the minimum to get their company match which is 4%. How can they just give up on free money? I could maybe understand if this guy didn't go to college and was making minimum wage but he is an engineer with an MBA. I can't think of any good reason why you wouldn't at least put in the minimum for the company match. Even if you were living paycheck to paycheck, I would figure out how to cut back so I could at least do the minimum.

Sibley

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #1 on: February 10, 2015, 07:13:03 AM »
Its more common than you think.

nereo

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #2 on: February 10, 2015, 07:51:02 AM »
Its more common than you think.
+1.  According to one TIAA-CREF study, about 23% of people who are eligible for a 401(k) plan don't contribute enough to get the 'free money'.   It's absurd.  It's also ridiculous that about half of all eligible people each year don't contribute to an IRA.  And it's incredible that, on average, US adults are carrying over $15,000 in cc debt, at an average rate of almost 19% - over $1500/year gone to interest on things we already bought... and that's a substantial IMPROVEMENT over where we were 5 years ago.

I've stopped being surprised at how poorly so many people deal with money because gross mistakes are just so damn common.


James

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #3 on: February 10, 2015, 08:00:03 AM »
That does blow my mind...
 
I think the biggest problem is the period before being vested in the retirement program. If the option was there when starting employment and it was just a matter of filling out all the forms, I think most would select at least the amount the get the match. But after working a year or two and getting used to a paycheck, people living paycheck to paycheck don't want to cut back when they get vested. And they aren't likely to spend the time and effort filling out the paperwork just to get "less" in their paycheck.
 
I wish businesses just provided a set retirement contribution from the start without the wait, I think that would help, but hard to blame businesses for rewarding loyalty either, they take on risk with each new hire, paying retirement benefits on new hires would just add to that. But with the delay, I think there will always be those who get used to the "full" paycheck and even a few percent "cut" isn't tolerable, no matter how much the math makes sense.

greaper007

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #4 on: February 10, 2015, 09:57:14 AM »
When I started working I never could.   I made less than $20k a year and had to pay back student loans.     Even with extreme frugality I was paycheck to paycheck.

Maybe he's in the same situation.

zephyr911

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DragonSlayer

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #6 on: February 10, 2015, 11:22:20 AM »
I wish employers would do a better job of explaining how the impact on your paycheck isn't dollar for dollar. Too many people think that contributing 5% to the 401K means losing exactly 5% of their take home pay, which isn't true. The impact is much less and employers/plan managers don't do a good job of debunking that myth, either for 401K's or HSA's.

I, too, am amazed at how much money people leave on the table. At DH's work, they match the first $400 of HSA contributions, dollar for dollar. They also give $2k per year into the HSA if you participate in the wellness program and earn a certain amount of points (which are super easy to get). And there's the 5% 401k match and the profit sharing, which is deposited directly into the 401K every year, but only if you participate (and it need only be $1 per pay period into the plan to get the bonus). But so many people don't participate in ANY of this. It's an awesome program and we grab as much $$ as we can every year. But so many people either can't be bothered to do the (minimum) work it takes to sign up and get points, or they think the impact on their take home pay is going to be too great. It's a shame.

zephyr911

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #7 on: February 10, 2015, 11:27:10 AM »
I wish employers would do a better job of explaining how the impact on your paycheck isn't dollar for dollar. Too many people think that contributing 5% to the 401K means losing exactly 5% of their take home pay, which isn't true. The impact is much less and employers/plan managers don't do a good job of debunking that myth, either for 401K's or HSA's.
Yeah, even with some experience in these things, I dramatically overestimated the impact of my last contribution increase. My new biweekly paycheck is nearly $100 over what I guessed. It's all about the progressive tax code and the resulting non-linear withholding.

Luck12

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #8 on: February 10, 2015, 11:56:21 AM »

+1.  According to one TIAA-CREF study, about 23% of people who are eligible for a 401(k) plan don't contribute enough to get the 'free money'.   It's absurd.  It's also ridiculous that about half of all eligible people each year don't contribute to an IRA.  And it's incredible that, on average, US adults are carrying over $15,000 in cc debt, at an average rate of almost 19% - over $1500/year gone to interest on things we already bought... and that's a substantial IMPROVEMENT over where we were 5 years ago.

I've stopped being surprised at how poorly so many people deal with money because gross mistakes are just so damn common.

I agree there are way too many dumbass mofo's out there, but median credit card debt is around 3K, nowhere near $15K average.   The $15K is first of all a mean which skews things upwards and secondly only includes those who actually have a revolving balance.   

nereo

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #9 on: February 10, 2015, 12:13:14 PM »
....  And it's incredible that, on average, US adults are carrying over $15,000 in cc debt, ...

I agree there are way too many dumbass mofo's out there, but median credit card debt is around 3K, nowhere near $15K average.   The $15K is first of all a mean which skews things upwards and secondly only includes those who actually have a revolving balance.
Good point - you are correct.  Thanks for fact-checking my posts.  About 42% of households have outstanding credit card debt, and OF those, the mean balance is about $15k.  However, it certainly is true that the median debt is lower, and per-capita median is around 3k.
Still, it blows my mind that tens of millions of people in the US have outstanding cc balances north of $10k. 

Quote
http://www.dailyfinance.com/2014/06/11/is-your-credit-card-debt-average/

frugalnacho

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #10 on: February 10, 2015, 12:23:21 PM »
....  And it's incredible that, on average, US adults are carrying over $15,000 in cc debt, ...

I agree there are way too many dumbass mofo's out there, but median credit card debt is around 3K, nowhere near $15K average.   The $15K is first of all a mean which skews things upwards and secondly only includes those who actually have a revolving balance.
Good point - you are correct.  Thanks for fact-checking my posts.  About 42% of households have outstanding credit card debt, and OF those, the mean balance is about $15k.  However, it certainly is true that the median debt is lower, and per-capita median is around 3k.
Still, it blows my mind that tens of millions of people in the US have outstanding cc balances north of $10k. 

Quote
http://www.dailyfinance.com/2014/06/11/is-your-credit-card-debt-average/

My coworker: I try to keep about 30% of my credit limit as a balance on my card.
me: (head explodes)...
me: OMG that's insane dude, why would you keep a balance on your credit card?
cw: I need it so I can build credit.
me: Dude, it's going to cost you an arm and a leg to keep that balance perpetually! Not only that, but you aren't increasing your credit score at all! Your credit score would be the same, and in fact probably even better if you paid that balance off in full and kept paying it off every month!
cw: Yeah.  But I need to build my credit.
me: (head comes back together) (head explodes a second time)

austin

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #11 on: February 10, 2015, 12:27:37 PM »
That's what I call the "Why do we need to learn math?" tax. Some people are just adamant about paying it.

zephyr911

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #12 on: February 10, 2015, 12:31:48 PM »
My coworker: I try to keep about 30% of my credit limit as a balance on my card.
me: (head explodes)...
me: OMG that's insane dude, why would you keep a balance on your credit card?
cw: I need it so I can build credit.
me: Dude, it's going to cost you an arm and a leg to keep that balance perpetually! Not only that, but you aren't increasing your credit score at all! Your credit score would be the same, and in fact probably even better if you paid that balance off in full and kept paying it off every month!
cw: Yeah.  But I need to build my credit.
me: (head comes back together) (head explodes a second time)
Wow. I don't know what they think they're going to do with this supposed credit once they build it, but that misconception is easily refuted through even the most basic online research.

30% is supposed to be the MAX you carry - 10-20% is equally good, and only 0% is technically worse, though only by a few points in most models. And they use the statement balance to calculate the percentage (e.g., 5k limit, spend 1k and pay it off, 20% utilization).

Carrying 30%, even compared to 0% (not just paying it off monthly but zero usage) will *never* improve their score by enough to make a real difference in available rates, let alone to offset the thousands they'll waste.
« Last Edit: February 10, 2015, 12:33:39 PM by zephyr911 »

nereo

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #13 on: February 10, 2015, 12:44:53 PM »
I wish employers would do a better job of explaining how the impact on your paycheck isn't dollar for dollar. Too many people think that contributing 5% to the 401K means losing exactly 5% of their take home pay, which isn't true. The impact is much less and employers/plan managers don't do a good job of debunking that myth, either for 401K's or HSA's.

Sadly, I think some employers see an advantage to having oblivious employees who don't take advantage of the 'free-money'.  Every employee who doesn't participate is a few $k they don't have to spend. 
Such thinking is short-sighted, of course, but I'm sure lots of CFOs are secretly glad that a quarter of their workforce doesn't participate.

James

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #14 on: February 10, 2015, 01:03:33 PM »
I wish employers would do a better job of explaining how the impact on your paycheck isn't dollar for dollar. Too many people think that contributing 5% to the 401K means losing exactly 5% of their take home pay, which isn't true. The impact is much less and employers/plan managers don't do a good job of debunking that myth, either for 401K's or HSA's.

Sadly, I think some employers see an advantage to having oblivious employees who don't take advantage of the 'free-money'.  Every employee who doesn't participate is a few $k they don't have to spend. 
Such thinking is short-sighted, of course, but I'm sure lots of CFOs are secretly glad that a quarter of their workforce doesn't participate.

And to be fair, many companies may have X amount of dollars they are willing to spend on employee benefits, and any of our co-workers who don't participate increase the amount we get. So maybe if everyone participated the employer might drop from 4% match to 3% match eventually. But whatever the case, not taking those benefits is hard to imagine.

desk_jockey

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #15 on: February 10, 2015, 01:27:38 PM »
And there are 401k rules for highly compensated employees.  The CFO may earn enough to not care personally about 401k contributions, but he probably wants to keep his directors and managers happy.    As HCEs those managers want to see the lower paid employees participate so that they too can make significant contributions. 

gluskap

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #16 on: February 10, 2015, 04:16:11 PM »
There's a perfect thread for this:

http://forum.mrmoneymustache.com/antimustachian-wall-of-shame-and-comedy/overheard-at-work/

That thread was getting too long and I thought this was so dumb that it deserved it's own thread lol.

That's what I call the "Why do we need to learn math?" tax. Some people are just adamant about paying it.

I guess this is like the financial Darwin awards =P

When I started working I never could.   I made less than $20k a year and had to pay back student loans.     Even with extreme frugality I was paycheck to paycheck.

Maybe he's in the same situation.

He's definitely making more than $20k a year.  I'd estimate as an engineer that he makes about $80-90k.  And his wife is an accountant.  I think they might be living paycheck to paycheck just because they have a house in a HCOL area and 2 kids but there is definitely room to cut if they wanted to.


My coworker: I try to keep about 30% of my credit limit as a balance on my card.
me: (head explodes)...
me: OMG that's insane dude, why would you keep a balance on your credit card?
cw: I need it so I can build credit.
me: Dude, it's going to cost you an arm and a leg to keep that balance perpetually! Not only that, but you aren't increasing your credit score at all! Your credit score would be the same, and in fact probably even better if you paid that balance off in full and kept paying it off every month!
cw: Yeah.  But I need to build my credit.
me: (head comes back together) (head explodes a second time)

Doesn't he realize that you build your credit by how long you have credit cards and pay them off and has nothing to do with whether you carry a balance or not?  We pay off our balance on our CC in full every month paying no interest and we have credit scores around 800.

Paul der Krake

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #17 on: February 10, 2015, 05:19:10 PM »
My employer automatically enrolls new hires with the necessary amount to get the full match (4%), after 60 days unless people explicitely opt out.

From conversations I have heard, it seems to take care of the indecisive crowd who doesn't care enough to find the form to opt out and fill it out, and wouldn't care to enroll if it required effort on their part.

nereo

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #18 on: February 10, 2015, 07:33:43 PM »
My employer automatically enrolls new hires with the necessary amount to get the full match (4%), after 60 days unless people explicitely opt out.

From conversations I have heard, it seems to take care of the indecisive crowd who doesn't care enough to find the form to opt out and fill it out, and wouldn't care to enroll if it required effort on their part.
I think that's a good way of doing it... but is that even legal?

johnny847

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #19 on: February 10, 2015, 07:39:17 PM »
My employer automatically enrolls new hires with the necessary amount to get the full match (4%), after 60 days unless people explicitely opt out.

From conversations I have heard, it seems to take care of the indecisive crowd who doesn't care enough to find the form to opt out and fill it out, and wouldn't care to enroll if it required effort on their part.
I think that's a good way of doing it... but is that even legal?
It may not be, but it will definitely help 401k plans pass discrimination testing (if only highly compensated employees are participating in the 401k, it's ruled discriminatory and some of the contributions of HCEs are refunded to them). So if laws were written logically (of course, obviously there are many out there that are not) then it would be legal.

Paul der Krake

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #20 on: February 10, 2015, 08:03:40 PM »
My employer automatically enrolls new hires with the necessary amount to get the full match (4%), after 60 days unless people explicitely opt out.

From conversations I have heard, it seems to take care of the indecisive crowd who doesn't care enough to find the form to opt out and fill it out, and wouldn't care to enroll if it required effort on their part.
I think that's a good way of doing it... but is that even legal?
Considering the army of lawyers employed by the firm, I'm going to go with legal. Why wouldn't it be?

MicroRN

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #21 on: February 10, 2015, 08:14:20 PM »
I worked for a university that put a huge match in.  If you contributed a minimum of 5% to your 403(b), they put in 10%.  There were still a ton of people who didn't contribute.  Why, I have no idea...   

nereo

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #22 on: February 11, 2015, 06:01:05 AM »
My employer automatically enrolls new hires with the necessary amount to get the full match (4%), after 60 days unless people explicitely opt out.

From conversations I have heard, it seems to take care of the indecisive crowd who doesn't care enough to find the form to opt out and fill it out, and wouldn't care to enroll if it required effort on their part.
I think that's a good way of doing it... but is that even legal?
Considering the army of lawyers employed by the firm, I'm going to go with legal. Why wouldn't it be?
well... because you are taking a portion of someone's income and putting it into an account where there are restrictions on how/when they can access that money. I just imagine a lawsuit where someone says "they promised to pay me $40k, but I found out i can't touch $2k of that because it's in some damn retirement account, and i *need* it now.  I'll add I'm not a lawyer.  Just curious.

But - I will say I'd favor the standard is for everyone to be autoenrolled.  Heck, I'd even favor everyone being auto-enrolled in an IRA too... in a more perfect world.

MrsPete

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #23 on: February 11, 2015, 06:09:56 AM »
My coworker: I try to keep about 30% of my credit limit as a balance on my card.
me: (head explodes)...
me: OMG that's insane dude, why would you keep a balance on your credit card?
cw: I need it so I can build credit.
me: Dude, it's going to cost you an arm and a leg to keep that balance perpetually! Not only that, but you aren't increasing your credit score at all! Your credit score would be the same, and in fact probably even better if you paid that balance off in full and kept paying it off every month!
cw: Yeah.  But I need to build my credit.
me: (head comes back together) (head explodes a second time)
Your co-worker is making a very common mistake:  He foolishly thinks that a high credit score = financial stability.  That simply isn't true. 

MrsPete

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #24 on: February 11, 2015, 06:10:48 AM »
I guess this is like the financial Darwin awards =P
That's a great term. 

Gin1984

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #25 on: February 11, 2015, 06:11:37 AM »
My employer automatically enrolls new hires with the necessary amount to get the full match (4%), after 60 days unless people explicitely opt out.

From conversations I have heard, it seems to take care of the indecisive crowd who doesn't care enough to find the form to opt out and fill it out, and wouldn't care to enroll if it required effort on their part.
I think that's a good way of doing it... but is that even legal?
Considering the army of lawyers employed by the firm, I'm going to go with legal. Why wouldn't it be?
well... because you are taking a portion of someone's income and putting it into an account where there are restrictions on how/when they can access that money. I just imagine a lawsuit where someone says "they promised to pay me $40k, but I found out i can't touch $2k of that because it's in some damn retirement account, and i *need* it now.  I'll add I'm not a lawyer.  Just curious.

But - I will say I'd favor the standard is for everyone to be autoenrolled.  Heck, I'd even favor everyone being auto-enrolled in an IRA too... in a more perfect world.
Some states have specifically made it legal but also you sign a ton of paperwork when you get hired at most jobs, consent could be in there.

zephyr911

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #26 on: February 11, 2015, 06:57:06 AM »
That's what I call the "Why do we need to learn math?" tax. Some people are just adamant about paying it.
There's that, but then:
...his wife is an accountant.
At this point, we have crossed over from an unfortunate lack of knowledge to totally inexplicable and willful ignorance. Does he literally walk around with his fingers in his ears going LA LA LA LA LA all day long?

mak1277

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #27 on: February 11, 2015, 07:23:38 AM »
I'll confess to doing this.

I am a CPA as well, and I missed out on company matching for 401k for the first five years of my career.  I had a fairly large student loan payment to make, and I made the conscious decision that I wanted to be able to drink beer and have fun more than I wanted to put away money for my 401k.  I essentially lived paycheck to paycheck, with no more than a $1,000 emergency fund, for those 5 years. 

Thing is, I don't regret it even slightly.  I'm lucky to be in a highly paid position, and when I met my wife she got me on the straight and narrow path of not wasting money (and not getting wasted nearly as often).  10 years later our NW is >$1 million.  Did those missed years cost me?  Sure.  Would they have cost me a lot more if I wasn't in a high paying job? Absolutely.  But I don't regret my choices at all.

Avidconsumer

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #28 on: February 11, 2015, 07:43:07 AM »
Buy VISA and MasterCard stocks with your 401k/IRA. Simples

boogiewoogie

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #29 on: February 11, 2015, 11:33:11 AM »
Most of my colleagues don't contribute to the equivalent here in the UK. We get a 6% match. One guy is really into cashback deals but then misses out on the 1800 he could be getting from the company every year.

I have mentioned it a few times to the guys that work for me, but they're like I need the money now. By which they mean I need the money now to play xbox, eat out everyday and other generally pointless activities.

It's not the end of the world by any means, but the shareholders of the company are quite happy not to match.

hdatontodo

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #30 on: February 11, 2015, 11:56:59 AM »
... Did those missed years cost me?  Sure.  Would they have cost me a lot more if I wasn't in a high paying job? Absolutely.  But I don't regret my choices at all.

I didn't start my 401K until I was in my early 30's (around 1995). I also bought a house at age 29 with like 3% down. Subsequent divorce was expensive too.

The only reason I'm not lamenting my decisions and history is that I was lucky to get some sudden and fairly large salary increases during my work career, and, my position changed 2 years ago to start paying overtime for my I.T. work. I think if I were hard up for money today, I would be looking back more. Instead, being in my 50's, I've been working my 3-year, $166K house payoff plan. I'm into year 2 now and have it down to $84K. Plus I remarried to someone who has a similar 401K balance so it's not all on me any more.

mak1277

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #31 on: February 11, 2015, 01:35:52 PM »
... Did those missed years cost me?  Sure.  Would they have cost me a lot more if I wasn't in a high paying job? Absolutely.  But I don't regret my choices at all.

I didn't start my 401K until I was in my early 30's (around 1995). I also bought a house at age 29 with like 3% down. Subsequent divorce was expensive too.

The only reason I'm not lamenting my decisions and history is that I was lucky to get some sudden and fairly large salary increases during my work career, and, my position changed 2 years ago to start paying overtime for my I.T. work. I think if I were hard up for money today, I would be looking back more. Instead, being in my 50's, I've been working my 3-year, $166K house payoff plan. I'm into year 2 now and have it down to $84K. Plus I remarried to someone who has a similar 401K balance so it's not all on me any more.

I was curious, so I just did the arithmetic on what I missed out on.  Based on my total compensation for the 5 years I didn't contribute, at my old company's match rate, I missed out on....

$4,065.  Plus compounding, sure, but even at 7% real annual growth over the intervening period the total is still less than $10,000. 

I'm glad I did this exercise...I am absolutely certain I don't regret my choices now.

Sid Hoffman

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #32 on: February 11, 2015, 08:00:38 PM »
Still, it blows my mind that tens of millions of people in the US have outstanding cc balances north of $10k.

When I was young and full of hope, I purchased a $20,000 sports car using one of those checks that credit card companies mail out.  It had a 0% for 6 months offer.  I sold the car in under 6 months for $19k and paid off the credit card balance before they ever started charging interest.  I think there was still a $250 flat fee associated with it, but as far as dumb decisions go, I still came out OK, even with having credit card balance at 50% of my gross income or something.

So... I guess my point is that even if people do have a huge balance, like the $20k I did, that also doesn't mean they are paying a lot of interest nor that they don't have a hair-brained scheme to pay it back soon.  My route was undoubtedly higher risk than most people would tolerate, but it did actually work out pretty well for me in the end.  It was certainly less than if I'd tried to rent a sports car for 4 months!  :)

gluskap

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #33 on: February 12, 2015, 10:26:05 AM »
OK get ready for this to be even more stupid.  So I thought fine if he's living paycheck to paycheck, even if I don't agree with his choices that's a conscious decision to make.  Turns out he has $80k in the bank in cash!  He doesn't want to contribute because he wants liquidity and he feels like he can't access the money in a 401k.  But I said you can borrow up to 50% at any time but he feels like since you have to pay back that 401k loan that it's still not accessible.  And he is doing his because he thinks cash is a good investment because the dollar is so strong.  Does this guy deserve a face punch or what?

vivophoenix

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #34 on: February 12, 2015, 10:31:19 AM »
OK get ready for this to be even more stupid.  So I thought fine if he's living paycheck to paycheck, even if I don't agree with his choices that's a conscious decision to make.  Turns out he has $80k in the bank in cash!  He doesn't want to contribute because he wants liquidity and he feels like he can't access the money in a 401k.  But I said you can borrow up to 50% at any time but he feels like since you have to pay back that 401k loan that it's still not accessible.  And he is doing his because he thinks cash is a good investment because the dollar is so strong.  Does this guy deserve a face punch or what?

does keeping money in a bank account count as investing?

i understand the dollar is strong, but doesnt that mean you take advantage and leverage things in dollars and not say euros?


zephyr911

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #35 on: February 12, 2015, 12:06:02 PM »
OK get ready for this to be even more stupid.  So I thought fine if he's living paycheck to paycheck, even if I don't agree with his choices that's a conscious decision to make.  Turns out he has $80k in the bank in cash!  He doesn't want to contribute because he wants liquidity and he feels like he can't access the money in a 401k.  But I said you can borrow up to 50% at any time but he feels like since you have to pay back that 401k loan that it's still not accessible.  And he is doing his because he thinks cash is a good investment because the dollar is so strong.  Does this guy deserve a face punch or what?
See MMM article re "springy debt cushion". What we're talking about is someone who is so risk-averse that their financially conservative approach is eroding their Stash.
The U.S. dollar has lost real purchasing power virtually every year since it has existed.
Even if you look at it relative to other currencies, which makes the view slightly rosier, its strength comes and goes. When it's strong, that's the worst time of all to concentrate your holdings in cash, because the pendulum always swings back. Anything would be better than sitting on cash.
(I've had the damnedest time trying to teach my wife this, because she's from Argentina and their hyperinflation actually makes USD a decent hedge... people there literally buy physical dollars and put them in lockboxes)

Sid Hoffman

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #36 on: February 12, 2015, 12:15:20 PM »
zephyr911 just said it as well or better than I could have.  Holding money in a checking account is a guaranteed negative rate of return because interest rates on checking, savings, and even CDs will always end up at or below the rate of inflation.  Currently they're probably 2% below inflation at least, so he's losing money every year in terms of real purchasing power.

There's risk aversion and then there's just nonsense.  Unless his bills are crazy high, $80,000 in checking is simply bonkers.  Even a specialist worker who believes it might take them 6-12 months to find a new job is unlikely to be spending $80k/year.  If his real expenses are more sensible, like $50k/year then at the very least, no more than $50k is needed in checking/savings to have that 12 month buffer.  Most people agree that 6-months is probably even more sensible so you're down to $25k at that point.  The rest should go in some kind of investment vehicle and all future budget surpluses should be going in 401k and long-term value investments.

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #37 on: February 12, 2015, 12:19:43 PM »
OK get ready for this to be even more stupid.  So I thought fine if he's living paycheck to paycheck, even if I don't agree with his choices that's a conscious decision to make.  Turns out he has $80k in the bank in cash!  He doesn't want to contribute because he wants liquidity and he feels like he can't access the money in a 401k.  But I said you can borrow up to 50% at any time but he feels like since you have to pay back that 401k loan that it's still not accessible.  And he is doing his because he thinks cash is a good investment because the dollar is so strong.  Does this guy deserve a face punch or what?

We don't have a 401K match at work (just profit sharing that goes directly in).  But we do have ESPP (15% discount on stock, up to 5% salary) where you can even sign up for a feature to sell the stock immediately after purchase.  I promise you most of these people aren't spendthrifts.  (Infact, one bikes to work often.)

There's really no explanation for that.  I just casually mention they are making less money by their own choice and leave it at that.

I am willing to talk about my strategy but I stay away from trying too hard.  If you convince someone who is only buying CDs or using savings accounts to start investing in their 401K, they will start crying about the irrelevant daily stock movements.  You might be doing them a favor but they won't be grateful for it unless the market is up.

gluskap

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #38 on: February 12, 2015, 02:05:14 PM »

does keeping money in a bank account count as investing?

i understand the dollar is strong, but doesnt that mean you take advantage and leverage things in dollars and not say euros?

That's exactly what I said!  How is keeping cash an "investment".  You are losing money due to inflation.  And the dollar being strong would help you if you weren't living in America and could trade the strong dollar for more spending power in a different currency.  SMH.  I've told the hubby to just give up trying to convince him.  Either he will figure it out on his own and kick himself for his stupidity or he will never learn.  I'm just so surprised that someone that educated could be so ignorant about what I thought were basic financial matters.  But I'm beginning to realize that common sense is anything but common.

jmusic

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #39 on: February 12, 2015, 02:48:37 PM »
But I'm beginning to realize that common sense is anything but common.

Thus the reason for this entire website... :)

clarkfan1979

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #40 on: February 13, 2015, 06:51:15 AM »
Its more common than you think.
+1.  According to one TIAA-CREF study, about 23% of people who are eligible for a 401(k) plan don't contribute enough to get the 'free money'.   It's absurd.  It's also ridiculous that about half of all eligible people each year don't contribute to an IRA.  And it's incredible that, on average, US adults are carrying over $15,000 in cc debt, at an average rate of almost 19% - over $1500/year gone to interest on things we already bought... and that's a substantial IMPROVEMENT over where we were 5 years ago.

I've stopped being surprised at how poorly so many people deal with money because gross mistakes are just so damn common.

Thank you for this. I always wondered what the data would look like for people not contributing the minimum to get the match. Isn't this why companies over a match and not a regular contribution?   

Roxy

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #41 on: February 13, 2015, 12:18:13 PM »
A lot of my coworkers don't contribute to the 403(b) here. Despite the 8% match our employer gives if you contribute 5%. And, the employer match vests at 100% IMMEDIATELY! They all say our employer doesn't pay us well enough for them to be able to contribute. Are you nuts?! I started contributing when I was 22 when my employer at the time said, even as a part time employee you can contribute. So, $10/week was being contributed. I know I was making less then, than these people make now. I really think part of the problem is no one has told them that their contribution is made with pre-tax dollars so they don't understand the actual effect it will have on their take-home pay. I increased my contributions at the beginning of the year and while it is making a big difference in my retirement account, the difference in my paycheck was miniscule.

solon

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #42 on: February 13, 2015, 01:23:18 PM »
I worked for a university that put a huge match in.  If you contributed a minimum of 5% to your 403(b), they put in 10%.  There were still a ton of people who didn't contribute.  Why, I have no idea...   

I would have a hard time passing up an instant 200% return.

MicroRN

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #43 on: February 17, 2015, 12:37:49 AM »
I worked for a university that put a huge match in.  If you contributed a minimum of 5% to your 403(b), they put in 10%.  There were still a ton of people who didn't contribute.  Why, I have no idea...   

I would have a hard time passing up an instant 200% return.

Yeah.  Granted, they paid ridiculously low wages, but they had awesome benefits.  Tons of PTO, high retirement match, free tuition, and super cheap health/dental insurance.

Trudie

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Re: Husbands coworker doesn't contribute to 401k...missing out on 4% match
« Reply #44 on: February 19, 2015, 05:41:07 PM »
I work at a small company with 20 employees and as the accountant I administer payroll and benefits.  Our company offers excellent benefits - including a 401K with a dollar for dollar 3% match (and on top of that we automatically get a 3% safe harbor contribution and an annual profit sharing contribution which has been 3-4%.)  Add to this health and dental insurance which is 90% employer paid for a reasonable PPO plan (with $1000 deductible).

Still, we have employees who don't contribute enough to get the match.

Over the years I have talked to them about this free money.  We have even gone so far as to put the payrates and deductions of those not participating into the test payroll system to generate a hypothetical detailed paycheck showing them the impact.  This has not resulted in increased participation.  The remaining two hold outs are long term employees who would be well-beyond the period to be 100% vested.

I give up!

In a similar vein, eight years ago we started a flexible spending account for health and dependent care.  I know there are employees with regular expenses (prescriptions, regular medical care) who don't participate.  We are a small employer group so enrollment sessions are mandatory.  Everyone's getting good information.  We even instituted a $500 rollover provision so that it's not totally "use it or lose it."  We've gained some participation, but not everyone who would benefit with little to no risk is participating.

Guess it's time to line them up at my office and hand out face punches.