If your employer matches a certain percentage of your contributions to your 401(k) plan, should you contribute enough to this 401(k) to get the maximum amount that the company will match?
In most cases, it's definitely smart to take advantage of as much company matching as possible. Let's say that for every $1 you sock away in your 401(k), your employer chips in $0.50. That's an immediate 50% return. It would be extremely difficult to beat that with any investment method.
The only time it might not be so great is if the matching money is going into something you're not comfortable with. If it's going into stock in your company, and you're deeply uncertain about the company's future, then perhaps that 50% return will soon become a 0% return. That's an extreme example, though. And even in that case, the money that you socked away can be in a safer place (perhaps an index fund), growing.
Finally, think back to Enron, and remember that you don't want to have too much of your retirement money tied up in the stock of just one (or very few) companies, even if you have great faith in them. Enron employees had great faith in their employer for a long time, too.
To learn more about retirement issues in an easy-to-read-and-understand package delivered to your mailbox, check out a free trial of our Rule Your Retirement newsletter. Robert Brokamp heads it up, and you can get a taste of his smarts and style in these articles:
- Do You Want to Work Forever?
- Stop Eating Your Retirement!
- Get Rich by Beating the Odds
- Annuities: Who Needs 'Em?
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