Andrew Dye/AP/Winston-Salem Journal/File
Vaughn Boone performs for residents last month at Arbor Acres retirement community in Winston-Salem, N.C. Hamm argues that not saving for retirement as early as possible, especially if your employer offers matching 401(k) contributions, is akin to throwing money in the trash.

Don't fear the 401(k)

Some workers won't sign up for a company-sponsored 401(k) because they don't understand it, or they're afraid of taking home less pay. That's a huge mistake.  

When I was in high school, my father’s employer launched a 401(k) program. He’d been there for twenty five years (off and on) at that time and was getting fairly close to his retirement, so it wasn’t 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 “keep up with the Joneses.”

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.

One, saving for retirement was important and it should be started as early as possible. I can’t 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 really well right now.

The other thing is a bit more troubling. Based on the attendance at the sign-up meeting, my father commented that at least half of his coworkers didn’t bother to sign up at all. This included a few of his closest work pals.

I remember asking him why they didn’t 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. This is particularly true if your employer offers any matching at all on your retirement plan. Not taking advantage of that is akin to throwing money in the trash, plain and simple

So, why doesn’t everyone do it? I think my father’s comment really hit the nail on the head.

It’s fear.

Some are afraid of the complexity of the plan. They’re on unsure ground when it comes to such things, so it’s 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 – particularly if your employer offers matching – is, for most people, an incredibly easy tool for taking control of what happens to you down the road.

If the plan’s complexity makes you afraid, ask for help – stop at your human resources office and simply request some assistance with signing up.

If you’re afraid of the ups and downs of the stock market, remember that you’re not investing for one year. You’re investing for thirty or forty years. Also, you don’t have to invest in stocks if you don’t want – you can have your 401(k) money invested in bonds or real estate or other things.

If you’re afraid of losing a bit of your paycheck, ask yourself how often you spend $5 or $10 on something completely unnecessary. It’s 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.

The post The Fear of a 401(k) appeared first on The Simple Dollar.

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to

QR Code to Don't fear the 401(k)
Read this article in
QR Code to Subscription page
Start your subscription today