Do You Know Your 401k?

My co-workers and I caught up at the water cooler. The big news is our 401k was changing custodians. This sparked an interesting, but unexpected discussion about retirement.

I’ve worked with Bubba and Sherlock for a few years. I still remember years ago when I convinced Bubba to put a small percentage of his paycheck into our company retirement plan. Ironically, after my conversion to public transportation, I convinced Bubba to go Metro, too. I just sat back as he passionately tried to convince Sherlock to contribute to his 401k. For a moment, I felt like a proud teacher or coach.

Sherlock, like his namesake, is very intelligent and quite savvy. He’s already a homeowner and seemed pretty knowledgeable about real estate, taxes, and general investments. As we continued to talk, I discovered he only knew half the story.

He understood money is put away pre-taxed, but that’s all he knew. He thought the 401k was a fund that sat on the side and would be available when we retire. He ranted I could be using that money to earn interest. “Why would I want those funds just sitting around?” I saw my opportunity to strike and explained to him about using those pre-taxed funds and buying into investment vehicles depending on his risk tolerance. Look out Sam Waterston and EF Hutton! He was unaware that he could use those funds to invest. His eyes lit up. Houston, we have lift off!

Final Thoughts

Bubba chimed in that he started slow and has been increasing his contributions year after year. The good news is Sherlock was very open-minded and after hearing both of our sides, would look into starting up his 401k. I initially thought my blog would be my vessel to educate, inspire, and entertain. I was pleasantly surprised and fulfilled when I achieved my goal, albeit a small one, offline. Although the stock market is a little volatile right now, everyone should contribute whatever they can into their company’s 401k. Besides the tax benefits, over the long run, the stock market should provide returns way better than what you could get in a savings account. If you are interested, I suggest you speak with your HR department or whoever is responsible for your company’s retirement plan. If your friend or co-worker is unclear about something you know about, give him or her a little nudge, you might make a big difference.

Speaking of inspiring, check out Prairie Eco-Thifter’s How to Inspire Others.

Stay Inspired!
Buck

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20 Responses

  1. I am surprised that Sherlock didn’t realize that the money in a 401(k) had investment options associated with it. I guess I am in a habit of trying to read and understand my benefit package so find it hard to fathom that there are some who might not.

  2. krantcents says:

    I always have difficulty understanding why employees need to be encouraged or motivated to contribute to their own 401K! I think it is the fear of the unknown. I think particularly recent turmoil in the stock market is adding to it. I remember talking to my employees years ago when I was CFO, encouraging them to contribute. So maybe current circumstances rally only adds to it.

    • I agree with Krant. It amazes me how people don’t take advantage of those kind of opportunities without being prompted. In Canada where I live we don’t have 401K’s but we do have RRSP’s and TFSA. The TFSA’s are a great way to make interest on money that is tax free vs tax deferred. I also take advantage of my employer pension. They match whatever I contribute up to a max which is awesome.

      PS: Thanks for mentioning my post on inspiring others too. Much appreciated.

      • Buck Inspire says:

        It is amazing, but without proper education, those advantages aren’t really known. Company matching? Lucky you! Maybe it’s time to find a new job with better benefits, haha. You’re welcome, I really enjoyed your post.

    • Buck Inspire says:

      Fear of the unknown, stock market volatility, and set in routines. Also perhaps the general public doesn’t really like making their money work for them?

  3. It’s frightening how little, so many people know about defined contribution retirement plans. Sadly, the lower income earners, get the worst advice, and make the worst decisions about their future. Average 401(k) returns are about 4%.

    I recommend watching a PBS/Frontline documentary called “Can You Afford To Retire”. It’s available online and shows how scary it can be when we are responsible for our own retirements.

  4. I’m surprised too. I assume everyone knows about 401k and how you can invest those money, but I guess that’s wrong. Our company is changing the 401k policy to an opt out policy. A new employee will be automatically enrolled unless they opt out. This is a good way to get people started. Good job getting your friends to invest.

  5. FinEngr says:

    No one will be the steward of your money except you.

    I always enjoy the chance to help my friends out. No matter what they decide to do, at least I’ve helped give them some basic information to make an informed decision.

    • Buck Inspire says:

      What’s that saying? No one should care more about your money than you? We can’t live each other’s lives, but giving basic info so people can make better decisions, that’s all we can do. Nice job!

  6. MoneyCone says:

    It is amazing when you hear the reasons on why someone isn’t taking advantage of 401K plans!

    One guy was convinced the money won’t be there when he retires! (I think he confused 401K with social security!!) 🙂

    • Buck Inspire says:

      Amazing, but I guess I can understand why since there are so many different money saving options. Weren’t there plans to convert social security into stock market holdings awhile back?

  7. Untemplater says:

    I’ve been increasing my contributions each year and it’s really made a difference. I locked in some gains in my bond fund and rebalanced into some international funds today. Great job helping your coworkers! -Sydney

  8. It amazes me that some people can be that clueless. I think it’s great that you saw an opportunity to extend your knowledge to others. 🙂 Helping others can be a wonderful experience, even if it’s one by one 🙂 Great job!

  9. MoneyReasons says:

    Since I work at a financial institution, most of my peers are already in the 401k my employer offers.

    But I have had success explaining Roth IRA to a few folks. I even got my buddy to open one and he’s knocking his stock picks out of the park now.

    To bad it’s not easier to measure the results of the articles we write on financial topics with the general public…

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