3 Of The Most Common Fears About 401(k)s + Why They Are Totally False.

Aside from the occasional complaint about how broke you are or how much you splurged at Anthropologie, when was the last time you really opened up to a friend about your financial decisions or situation? While at Happy Hour the other day, one of my friends, unknowingly, gave me the push I needed to get back to blogging. In passing, she mentioned not taking advantage of her employer match and being unsure about the value of contributing to a 401(k). (Surprisingly, I’m not making this up. This conversation really happened.) Days later and I still can’t stop thinking about this conversation. Part of being a good friend is fighting for the best for one another and speaking up, even if it is uncomfortable. And money is definitely uncomfortable. I thought, if this intelligent + independent friend of mine feels this way, there must be many others out there feeling similarly. So, here are my responses to any of the common concerns that you might be having:

1.” I’m not sure I need the employer match. I think I would rather invest my money on my own.”

Let me put it this way, an employer match is FREE MONEY. I know you probably grew up to believe that nothing in life is free, but, in this case, it really is. For every dollar of your income that you invest, up to the match percentage, your employer is literally giving you a dollar. No work or effort on your part needed. If you think you can find a better return on investment out there, you are crazy.

To put in perspective, over time, the average return on investment in the stock market is 7%, in real estate is 9.5% and in a savings account just 0.06%. An employer match is a 100% return on investment. Unless you happen to strike it lucky and purchase shares, today, of the next Amazon, you will not find a better return on investment anywhere. Period.

2. “The match isn’t THAT much money when you think about it. Does it really matter?”

As human beings, it is in our nature to focus on instant satisfaction + the “here and now” rather than think long term or too far in the future. Especially as young people, it is so difficult to imagine ourselves retiring that it can be hard to really value the benefits of a 401(k). For those who think an employer match isn’t “that much money,” let me put it this way.

Let’s say you make $50,000, the median income across the United States according to Payscale, and your employer matches 5% of your 401(k) contributions. This equates to an annual contribution of $5000. Even assuming the worst, no salary increase + no increase in your own contributions, this $5000 annual contribution would be worth $1,050,590 at retirement. Unless you’re Kourtney Kardashian (in which case, I’m a huge fan and so excited that you are reading my blog), I would hope over 1 million dollars feels like “THAT much money” to you.

3. “But, I want to choose how my money is invested.”

News flash: If you have ever taken the time to login to your company’s retirement website or to meet with a representative, you can absolutely choose how your money is invested. I have never heard of a 401(k) program that prevents you from choosing how your money is invested. Using my own 401(k) as an example, there are over fifty different funds that I can choose from. I guarantee one of these funds will match exactly what you can find at another brokerage. Even better, it allows you to invest your pre-tax earnings. If I want to get even more detailed, I can select a percentage of each fund to invest in. If you’re concerned about the control that you can have over your 401(k), I would, honestly, be more concerned by how much control you can have rather than by how little.

I, wholeheartedly, agree and believe that you do not need to invest any more than what your employer will match. As long as you are investing in other ways, and not spending the excess you would have contributed on shoes, there are hundreds of other ways to earn an equal or better return on investment. However, when it comes to the percentage your employer will match, this one is really not up for debate. If I could convince young people of any one financial decision to make, the most important would be to take your employer match. It is free money, gives you a 100% return on investment, will make you a millionaire at retirement and still gives you control over your money.

I am excited to return to sharing my passion and love for all things personal finance with all of you. As always, please feel free to share any questions, challenges, criticisms or successes. Let’s all live our best (financial) lives.