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November 14, 2006


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Actually I can speak to this since I was one of those young people who decided that getting 100% matching from my previous employer wasn't worth it. For me it was money that was coming out of my pocket even though it really wasn't. For me at the time spending the money I made was far mor important than putting money into a retirement plan. I was 25, what did I need to worry about saving for the day I no longer worked. I was also upto my eyeballs in debt; taking money out of my cashflow to invest wasn't something I was concerned with at the time. I've since wisened up a little bit; if my company had a matching program I would be all over it in a heartbeat. Alas they don't; but this constant need for money to spend is how a lot of young people live these days (I know I was one of them)

Thanks for highlighting my comment.

One example I like to use, and which is applicable to most matching programs is how little it takes to actually add up to decent savings. If your employer offers a 100% match on any portion of your contributions, more than likely they will match a minimum of $500.

So, how hard is it to save $500? If you're living paycheck to paycheck, that can sound like a daunting task, but it really isn't. For example, if you are paid bi-weekly, that means there is generally 26 pay periods in a calendar year. To reach $500 in a year that is less than $20 per paycheck! How many people, even on a very modest salary would be simply unable to go on through life if their paycheck was about $20 less? A meager $20 per paycheck every two weeks with a company match is $1,000 saved, before any interest or gains on the money.

If someone still thinks they can't even afford $20 every other week, I'm guessing they can easily come up with that savings elsewhere in your life. How much does it cost to buy lunch during the week while at work? Probably 4-6 dollars each time. Do you like coffee? How much do you spend on coffee every morning? Make a sandwich or take leftovers for lunch to work just twice a week and look at that, you probably saved that $20 that is now going into your retirement plan, which is in turn being doubled. Net result, even though you are getting paid $20 less, you're saving that $20 elsewhere and actually gaining $20 from your employer.

And I also like to use a worst-case scenario for some younger people who I have trouble getting to enroll, and that is to use an example that they are stuck in their current financial situation for the next 5 years. They have no pay increases and they feel they can't afford to save any additional money. Well, let's say you get your $500 match for the next 5 years, and you earn 9% a year.

Over the course of 5 years in the worst case scenario at the same job, you have saved $2,500. At the end of 5 years, your account value is $5,984.71. A total return of 139%. And that was on only $20 per paycheck. Not too bad at all, and that is a good head-start that someone who starts this at say 23 or 25 will have when compared to waiting until 28 or 30 to get started just because money is tight.

What is their typical reason for not enrolling? Are they afraid there will be some kind of "catch," or do they simply not realize the importance of saving?

I generally find they just have no concern for saving. The mindset is all about here and now, and they think that they have plenty of time to catch up. I am running across more people in their 20's who do understand the importance of saving and starting early, but their mental roadblock is simply the feeling that they can't spare anything from their paycheck.

When I have a chance to meet one-on-one with employees, through a discussion and using some calculations and examples I can almost always get them past the though of not saving anything to at least putting 10 or 20 bucks away per pay period. The biggest problem is when I am giving a presentation in front of 30 or 40 new employees. Most are tired, falling asleep, and just tune out everything once they hear the word retirement.

As someone under 30 (just) I understand where these young people are coming from. Who wants to think about being elderly and alone in the world when you're just out of school, just in a new job that you've worked hard just to get, and probably facing higher costs of living plus university-related debt.

Here in Australia, employers must put a certain amount (I think the minimum is 7% of gross salary) into a Superannuation Fund for the employee. My employer contributes 9%. The last two years (since I started work) I have contributed enough after tax to recieve the maximum Super Co-Contribution from the government. In the current financial year (06-07) that's barely going to be worth it for me: whereas in my first year I received $1000 from the Co-Contribution scheme, next year I believe the most I can get is about $250.

Once I turn 30, I plan to start salary-sacrificing to bring my total employer+me contribution up to 15%. Right now, though, I'm saving frantically for my first actual vacation in two years and my first trip to Europe ever.

It is a tragedy that there is absolutely no financial education in our public school system. Young people are not educated about how to manage their finances, that this shows in people not enrolling in company 401k plans.

In defense of some of those who pass on this, the match is only upfront and many matches only vest in 4-5 years which would amount to a ~20% return if you were there long enough for it to vest in the first place, or less if you were there longer. Paying off high credit card debt could easily offer a better return.

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