Wednesday, February 27, 2008

Participate in your Employers 401(k) Match Program

Employers are slowly moving away from the traditional pension plans that many of our parents enjoy and now offering an employee match program. This means employees can no longer sit back and let others make their retirement decisions for them, but must be proactive in planning their futures.

What is an Employer Match Program?
Participants of an employer match program will receive a dollar for dollar match on money taken out of each of their paychecks up to a certain percentage that is then placed into a sponsored retirement plan (ex. 401k or 403b). It’s important to understand that companies will offer a 100% match on your savings up to a certain percentage of your salary, usually, anywhere from 4-6% of your pretax salary. For example, if you make $50,000/year and put 6% of your salary into a 401(k) account, you would save $2,000/year. Now, add the 6% match from your employer and now you saved $2,000 from your employer to give you a yearly savings/investment of $4,000.

Take it, it’s Free Money!
While we can understand the hestitation of putting money into a savings plan bi-weekly because your paychecks will shrink, it’s important for you to understand that by participating your paychecks actually increase! Keep in mind that an 8% return on an investment in one year is considered a good investment. When your employer is offering you a match on your savings, you are already up 100% on your investment for the year. Just to try to stress the point even further, consider the example above, if you participate in your employer match program for 30 years, earning an average of 8% a year on your investments and make $50,000/annually with 6% match you would accumulate $496,289 over the 30 years. Only $60,000 of the $496,289 is actually coming from your check, the rest is employer matched and interest. Take it, it’s free money! $

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