Matching 401k

Laying on a beach, fishing in a lake, playing golf, helping the local community center, relaxing – Isn’t that what retirement is all about? One of the most important items you can do is to fully understand your companies’ retirement plan so you can afford to do the things you want to do!

One common retirement plan is a matching 401k. This is where your company will match your 401k contributions/deposits up to a certain percentage of your pay. Usually the matching percentage is 3 to 5%, and many times within the 401k plan, there are several investment options to choose from.

While eating lunch with a few coworkers, we began talking about retirement and the topic of 401k surfaced. Without thinking, I asked – “Are you all contributing at least 5% of your pay to the 401k program?” One of the lunch attendees said “No, I am too young to worry about retirement.” This person was basically giving up an investment that would yield 100%.

I asked if she would like a deal where she would place $100 into a savings account and I would deposit $100 into that same savings account – giving her $200. She said – “Of course.” That is the basic process for matching 401k contributions. For every dollar you contribute, the company will match that amount up to a certain percentage of your base pay.

She would try it for one year, doing $100 per month. About half way through the first year, she was surprised that her account balance was $1,246 –having the matching impact and some dividend/interest/investment income as well. By the end of the first year, she had $2,543 in the account, of which $1,200 was her contribution from her paycheck and the remaining was from the company match and income from her 401k investment selections.

If your company offers a matching 401k contribution up to a certain percentage, please take advantage of that option and contribute at least to their matching percentage. The earlier you start the process, the more money you will have by the time you are ready to retire. You really can’t beat a 100% return for your investment.