When I was in high school, my father’s employer launched a 401(k) program. He’d been there for twenty five years (off and on) at that time and was getting fairly close to his retirement, so it wasn’t a huge deal for him.
Still, my father has always been pretty careful with his money. Aside from their mortgage, my parents have never been in significant debt, even during periods of unemployment. They put money directly from their pay into a credit union every pay period and treated it as an emergency fund, saved up for major expenses like Christmas, and completely avoided the desire to spend to “keep up with the Joneses.” Naturally, he wanted to know more, so when his company held some informative meetings in the evening about utilizing the new 401(k) program, he attended.
He also took me along. I was about fifteen at the time and, quite honestly, the idea of retirement was about the furthest thing from my mind. There were really two things I took away from that whole experience:
One, saving for retirement was important and it should be started as early as possible. I can’t tell you how many times my old man said that he wished the program had been around when he started working there. If it had been, my parents would be doing really well right now.
The other thing is a bit more troubling. Based on the attendance at the sign-up meeting, my father commented that at least half of his coworkers didn’t bother to sign up at all. This included a few of his closest work pals.
I remember asking him why they didn’t do this, because the 401(k) program seemed like a no-brainer both to him and to me. He just smiled that half smile and told me that he thought they were afraid of taking home less pay. My mind flashed back to the presentation from that informative meeting, where someone showed what would happen if someone contributed $30 a week to their 401(k) starting in 1965. By 1995, someone who had done that would have enough money saved that they would effectively be doubling their Social Security payments in retirement. The effect on their take-home pay was to simply lose $20.
The math for saving for retirement makes the choice common sense. This is particularly true if your employer offers any matching at all on your retirement plan. Not taking advantage of that is akin to throwing money in the trash, plain and simple. So, why doesn’t everyone do it? I think my father’s comment really hit the nail on the head.
It’s fear.
Some are afraid of the complexity of the plan. They’re on unsure ground when it comes to such things, so it’s easier to just not do it. Others are afraid of the ups and downs of the stock market. They even out over time, but hearing stories about the stock market dropping 40% in a single year makes them afraid to ever put their money out there. The stock market has recovered everything and more since 2008, but that experience has placed fear into many hearts. Still others might be afraid of a slight reduction in their paychecks. Some people dread the idea of even a $20 reduction in each paycheck.
All of these fears are groundless in the face of securing your retirement. A 401(k) plan– particularly if your employer offers matching–is, for most people, an incredibly easy tool for taking control of what happens to you down the road.
If the plan’s complexity makes you afraid, ask for help–stop at your human resources office and simply request some assistance with signing up.
If you’re afraid of the ups and downs of the stock market, remember that you’re not investing for one year. You’re investing for thirty or forty years. Also, you don’t have to invest in stocks if you don’t want–you can have your 401(k) money invested in bonds or real estate or other things.
If you’re afraid of losing a bit of your paycheck, ask yourself how often you spend $5 or $10 on something completely unnecessary. It’s incredibly easy to just cut two or three little forgettable expenses out of your life.
Step away from the fear and step up to the plate for your retirement. Opening a 401(k) plan is a great first step.
The Fear of a 401(k) | The Simple Dollar
Trent Hamm is a personal finance writer at TheSimpleDollar.com. After pulling himself out of his own financial crisis, he founded the site in late 2006 to help others through financially difficult situations; today the site has become a finance, insurance, and retirement resource. Contact Trent at trent AT the simple dollar DOT com; please send site inquiries to inquiries AT the simple dollar DOT com.
Image remixed from Sam72 (Shutterstock).
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