Celebrating 401(k) Day with a challenge

September 12, 2021

Do you know anyone who doesn’t participate in his or her 401(k) plan at work? Perhaps it’s a family member or friend, or someone who just started working after college?

If you’re not sure, the perfect opportunity to bring up the subject is now, in celebration of National 401(k) Day, Sept. 10.

Why would you pursue this dialogue?

Simple: You can make a difference.

It’s not that hard to motivate someone to start on a path toward financial security. Sharing some key information can create enough of an incentive for one to take action.

Here is my challenge to you: Use 401(k) Day to start a conversation. Though COVID-19 is still lurking, there is no better time than now ask two very simple questions:

1) Do you have access to a 401(k) at work?

2) If you are not participating, what’s the reason?

In my experience, the reason could be based on misinformation.

1) Could people not realize that Social Security retirement benefits don’t cover all costs? (Social Security is a safety net, not intended to fully cover one’s living expenses in retirement.)

2) Could someone be holding off because he or she can’t afford to contribute? (In many cases, tax savings on pre-tax contributions and refiguring your W-4 withholding can solve that problem.)

3) Could one fail to understand that time is the single most important driver behind creating a retirement nest egg? (Starting to save and invest for retirement as early as possible maximizes the math of compounding. More on this in a moment.)

4) Could someone fail to realize that they are missing out on employer matching contributions that other employees are receiving? (Many 401(k) plans offer matching or profit-sharing contributions. According to FINRA, the Financial Industry Regulatory Authority, the most common employer match is dollar-for-dollar up to 3% of salary. You’ll want to make sure you are contributing enough to trigger the full company 401(k) match; the match is a tax-free bonus you need to claim.)

A 401(k) participant, a teacher who figured all of this out, offered this perspective:

“I’ve been told by the younger teachers that they can’t afford to contribute, and I always reply that they can’t NOT afford to! They are throwing money away if they don’t start with at least the (amount) needed to maximize the employer match. I wish someone had had this talk with me when I was much younger.”

This 401(k) participant was one of last year’s winners of the annual 401(k) Champion Award (sponsored by yours truly). In case your circle of friends and relatives includes 401(k) fans, you can nominate them for the 2021 title of 401(k) Champion here: 401kchampion.com. Nominations are now open, as of 401(k) Day.

Before leaving this subject, here are a few resources from FINRA.

  On the topic of compounding, read about starting early (“The Time Is Now” at tinyurl.com/2aabdrvp). Importantly, this resource also includes a 401(k) case study.

  To assess future needs, use FINRA’s “Retirement Calculator” at tinyurl.com/3e3wxvxs.

  Another resource is FINRA’s 401(k) “Save the Max Calculator” at tinyurl.com/23brve6r. You can use it to determine how much you should save per paycheck to reach the yearly maximum amount allowed for an employee’s elective deferral.

  Also look at the IRS site that provides information on limits on 401(k) contributions at tinyurl.com/38x2eb3b.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford) and author, welcomes your questions/comments (readers@juliejason.com). Her awards include the 2020 Clarion Award, symbolizing excellence in clear, concise communications. Her latest book, a curated collection of Julie’s columns, is “Retire Securely: Insights on Money Management From an Award-Winning Financial Columnist.” To hear Julie speak, visit juliejason.com/events.