Less matching money threatens retirement security
Posted on February 27th, 2009 – 2:24 PMBy Kara McGuire
Eliminating a 401(k) match is an easy way for companies to cut expenses without cutting employees. But new research from Fidelity finds that companies offering the equivalent of 3 percent of a participants salary increased worker participation by 9 percentage points. Add in immediate vesting to the 401(k) plan, and that number jumps to 11 percentage points.
When an employer ditches a match, almost half see a decrease in participation and/or deferral rates. That’s the exact opposite of what needs to happen, as I wrote in this recent column.
Fidelity found that the match had the largest impact on workers in their 30s and 40s. Because of many competing expenses, it’s easy for workers who have their match snatched to say “forget it” and put the cash towards kids or home improvements instead.
How about you? Would you chuck your 401(k) contributions if your employer dumped its share? Or would that prompt you to save even more?
22 Responses to "Less matching money threatens retirement security"
I’d try to increase my contribution the 4% that I’d be missing out on. At a minimum, I’d maintain a steady course. My company still provides a pension. However, I don’t even take that into consideration for retirement planning so I wouldn’t try to make up for it if/when they eliminate it.
I get no match but an annual profit-sharing contribution. I’m riding out past elections but new money is going into a money market account until there’s a growth option. I’m keeping the same rate. It’s more insurance money for my family if I die before retirement.
I would stop contributing to my 401(k) and invest the money in my Roth IRA. That way I wouldn’t need to worry about paying taxes when I start receiving distributions for my Roth.
The fact that employers offer a match is what makes the investment of 401k better than a ROTH IRA (if you qualify)…your investment options are limitless via an IRA option…NO MATCH…NO 401k for me.
I would still contribute, but I view my employer’s contribution (4%) as about the amount that I lose every pay check, so I don’t feel like I’m losing “my” money. I also have to admit that my employer’s vesting schedule discourages my job hunting a little bit, especially around my vesting aniversary.
I would continue contributing to my 401K and then take the percentage the company was matching and invest it in a Roth IRA. That way I would be diversified tax wise when I start taking distributions.
I would take it out. We are “semi-retired” and could use the money right now. Matching contributions are free money; straight investments seem to be “lost” money right now.
I’d ditch the 401(k) and put that money into a Roth. I’d have better investment choices in a Roth and would rather pay the tax now at these historically low rates and get $ out tax-free later. With the amount of gov’t spending going on right now, tax rates are likely to be much higher when I’m retired.
If they would eliminate the match, I’d have to seriously consider putting the money in a roth ira instead. However, it would not shock me at all if at some point in the distant future, the government decides to tax roth ira money as well. They seem to do whatever they want.
If my employer eliminated their match to my 401k, I’d pull my contribution and roll it into something I have more control over.
I don’t have a match at my current company so why even bother to participate? The way health insurance is going up, I’m going to need to stay at this job until I die anyway…..
I probably wouldn’t change anything, and might increase it slightly. Luckily our company actually just increased it’s matching so I don’t have to worry about that. Although I can’t bring myself to check on it because the numbers are so sad.
I would stay the course and contribute the same. Between my 401K, 6 month salary fund, and college funds for 4 kids, I don’t think I can put more into savings without tapping into my expenses.
I would drop my contributions to the 401(k) entirely and opt to put an equivalent amount into an IRA instead. More control of my investments that way.
I would definately chuck it all together if I could. Unfortunately, my employer gives me no choice but to put 1% of my salary into 401K. I suppose that is to cover the expenses that they incur just to have the retirement plan available. The way I figure it, I am going to be dead before I am able to actually retire. I am going to give you a little look into the future, if you are poor, your healthcare will be paid for but, if you work and have done pretty well for yourself, you are going to pay big bucks of your saved retirement for healthcare which means you are not going to spend all those years of saving for healthcare which means you are not going to retire. A buck earned is worth a lot more then one that is just given.
My employer recently announced an end to a 4% 1:1 match. This was done after they previously eliminated a 4% 1:1 + 2% .5:1 structure earlier in the FY.
This has caused me to try and evaluate what is best for me at age 43.
Continue to fund my Fidelity 401K at present levels on a pre-tax basis? Increase my participation by a couple of points in a down market, but at a time when I should build my emergency fund(just in case)? Reduce my participation and start funding a Roth IRA, taking a tax hit now, but reducing my tax burden at time of pay out?
I’m really not certain, so I’m not doing anything different right now. It would be great if I could have a little more confidence about any decision.
Currently I put in the minimum needed to maximize the employer matching contribution. If it wasn’t for the matching, I’d put ZERO into a 401k, and instead either put extra money in my credit union Roth IRA, getting 2.5% interest now or extra payments on my 5% interest mortage. Those are guarantees I like! But since employer matches 401k but NOT anything else, I’ll take (throw away) free money even if it loses 1/2 its value, I’m even. Lovely world, but it’s not my money that is getting burned!
I received a letter yesterday indicating that the company 401k match had changed from (.50% up to 6%) to (.25 up to 6%). At least the match is being cut instead dropped altogether. I hope the change does not last long.
I would continue to contribute to my 401k regardless of what happens to the matching funds - it’s a great way to reduce my tax burden. In the long term, the ROI will far surpass that of paying a mortgage down early or stuffing the funds in a long-term CD.
I view the current stock market as a sort of clearance sale. In 30 years, these stock prices will look dirt cheap.
How quaint - folks still talking about contributing to 401k’s!? I’ve diversified to stocking up on moderately priced bourbon, be sweet if you all could talk your boss into matching you on an investment like that… I admit that I might be making bad assumptions and we are really all up for The growth spurt to get us all out of our current shabby reality into the market indices of our dreams. I’m rooting for the winner.
The weird thing is that I am not fully convinced that those “in the know” or those folks who make a lot more than I do are struggling like the rest of us.
Everyone is saying to still diversify, and contribute the most to a 401k, and do this, and do that. What I would like to know is what are boomers who were planning on retiring in the next 5 - 10 years doing? Do they know something that the rest of us do not? How come we do not not hear about the hits that Warren Buffet or Bill Gates are taking?
I think the simple reason is that once you are immerse in the industry (”in the know”) you are much less susceptible to these market swings as us common folks. We are victim to whatever the bigwigs want to say. They know exactly how to grow their money and preserve it at the very least.
It frustrustes me because we all know that it sounds good to keep putting away for retirement but we really are at the whims of others.
Thoughts?
“Would you chuck your 401(k) contributions if your employer dumped its share? Or would that prompt you to save even more?”
I would not stop contributing if my employer stopped. I might contribute more to make up the difference.
I don’t understand the mentality of “If they’re not going to help me save, I’m not going to save anything at all.”
