Saving for your later years is a challenge, but there are some things that make the process easier. This includes having a workplace retirement plan to which you can automatically contribute -- one that often comes with matching employer contributions.
Unfortunately, many people who have the opportunity to take advantage of this type of plan have opted out of doing so -- and this could be a huge mistake.
Image source: Getty Images.
Millions of workers are passing up the option to make 401(k) contributions
According to the Transamerica Center for Retirement Studies, only 78% of employees who have access to a 401(k) at work are contributing to it. This means nearly a quarter of people are missing out on a great way to save for their later years.
A 401(k) isn't a perfect account. It offers a limited range of investment options, and sometimes the fees charged on those are higher than what you might pay with similar investments available outside a 401(k). But this type of plan does have some huge benefits, including the possibility of an employer matching contribution, as well as the ease of investing in it.
If your company offers an employer match, they will put money into your account when you do. The specifics can differ depending on where you work, but the match is often pretty generous. In fact, you may be eligible to get an employer contribution equal to as much as 50% or 100% of what you put in, up to a certain percentage of your salary. If you could access this free money by making contributions and you're among the 22% of workers with a 401(k) who isn't doing that, you are passing up free money.
Even if your employer doesn't offer matching funds, your 401(k) still offers the chance to invest directly out of your salary before you get your paycheck. That maximizes the chances you'll consistently contribute. And these accounts come with generous tax breaks, as you can contribute with pre-tax dollars and potentially also earn the Saver's Credit by making contributions.
So unless you're making automated contributions to a different kind of retirement account, such as an IRA, not using your 401(k) means you could be missing out on a generous subsidy from Uncle Sam to help you save.
Should you contribute to your 401(k)?
If you're among the workers with access to a 401(k) that you aren't contributing to, ask yourself why. If you've chosen another retirement account because you don't get an employer match and you prefer the investing flexibility or tax benefits this other plan offers, you probably don't need to worry about missing the chance to invest in your employer's plan.
But if you aren't contributing to your 401(k) at work because you think you can't afford to do so or because you aren't sure how, you should take a serious look at making changes so you can start investing. Even putting a small amount of money away could help you earn some matching funds and start taking advantage of compound growth. And 401(k) investing is specifically designed to be easy and not require much investing knowledge.
You don't want to get to retirement and have regrets, so explore the possibility of contributing to your 401(k) if you can.
