Don't fear the 401(k)
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When I was in high school, my father鈥檚 employer launched a 401(k) program. He鈥檇 been there for twenty five years (off and on) at that time and was getting fairly close to his retirement, so it wasn鈥檛 a huge deal for him.
Still, my father has always been pretty careful with his money. Aside from their mortgage, my parents have never been in significant debt, even during periods of unemployment. They put money directly from their pay into a credit union every pay period and treated it as an emergency fund, saved up for major expenses like Christmas, and completely avoided the desire to spend to 鈥渒eep up with the Joneses.鈥
Naturally, he wanted to know more, so when his company held some informative meetings in the evening about utilizing the new 401(k) program, he attended.
He also took me along.
I was about fifteen at the time and, quite honestly, the idea of retirement was about the furthest thing from my mind. There were really two things I took away from that whole experience.
翱苍别,听saving for retirement was important and it should be started as early as possible.聽I can鈥檛 tell you how many times my old man said that he wished the program had been around when he started working there. If it had been, my parents would be doing聽really聽well right now.
The other thing is a bit more troubling. Based on the attendance at the sign-up meeting, my father commented that聽at least half of his coworkers didn鈥檛 bother to sign up at all.聽This included a few of his closest work pals.
I remember asking him why they didn鈥檛 do this, because the 401(k) program seemed like a no-brainer both to him and to me.
He just smiled that half smile and told me that he thought they were afraid of taking home less pay.
My mind flashed back to the presentation from that informative meeting, where someone showed what would happen if someone contributed $30 a week to their 401(k) starting in 1965. By 1995, someone who had done that would have enough money saved that they would effectively be doubling their Social Security payments in retirement. The effect on their take-home pay was to simply lose $20.
The math for saving for retirement makes the choice common sense.聽This is particularly true if your employer offers any matching at all on your retirement plan.聽Not聽taking advantage of that is akin to throwing money in the trash, plain and simple
So, why doesn鈥檛 everyone do it? I think my father鈥檚 comment really hit the nail on the head.
It鈥檚 fear.
Some are afraid of the complexity of the plan. They鈥檙e on unsure ground when it comes to such things, so it鈥檚 easier to just not do it.
Others are afraid of the ups and downs of the stock market. They even out over time, but hearing stories about the stock market dropping 40% in a single year makes them afraid to ever put their money out there. The stock market has recovered everything and more since 2008, but that experience has placed fear into many hearts.
Still others might be afraid of a slight reduction in their paychecks. Some people dread the idea of even a $20 reduction in each paycheck.
All of these fears are groundless in the face of securing your retirement. A 401(k) plan 鈥 particularly if your employer offers matching 鈥 is, for most people, an incredibly easy tool for taking control of what happens to you down the road.
If the plan鈥檚 complexity makes you afraid, ask for help 鈥 stop at your human resources office and simply request some assistance with signing up.
If you鈥檙e afraid of the ups and downs of the stock market, remember that you鈥檙e not investing for one year. You鈥檙e investing for thirty or forty years. Also, you don鈥檛 have to invest in stocks if you don鈥檛 want 鈥 you can have your 401(k) money invested in bonds or real estate or other things.
If you鈥檙e afraid of losing a bit of your paycheck, ask yourself how often you spend $5 or $10 on something completely unnecessary. It鈥檚 incredibly easy to just cut two or three little forgettable expenses out of your life.
Step away from the fear and step up to the plate for your retirement. Opening a 401(k) plan is a great first step.
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