A 2018 study conducted by PlanSponsor.com surveyed 1,070 American workers on their thoughts about employer sponsored retirement plans.
There were a number of questions about 401(k) plans and you can read more about the study here, but one question in particular really spiked my interest.
The question asked people why they don’t participate in a 401(k) plan and the graphic below shows a breakdown of the most common answers.
I should mention that the number one reason workers don’t contribute to a 401(k) plan is because they don’t have access to one. According to data analyzed by The Pew Charitable Trusts, 35 percent of Americans over age 22 don’t have access to an employer-sponsored retirement plan.
Obviously, If your employer doesn’t offer a 401(k) then you obviously won’t be able to participate even if you want to.
But let’s take a quick look at the other reasons workers gave for not participating in a retirement plan.
Living Day to Day: 26 percent
I totally get this one.
When you’re living paycheck to paycheck and trying to make ends meet, the last thing you’re thinking about it is saving for retirement.
How do you even think about retiring when you’re struggling to just to keep food on the table for your family?
Trust me, I know. Money has been tight ever since we made the decision to become a single income family.
It’s great knowing that my wife is home to raise the kids but that peace of mind comes at a cost. We’ve had to make a lot of sacrifices along the way and one of them was not contributing as much to my 401k(k) as I would have liked.
There were a few times over the years where I had to stop contributing altogether just to get by.
And you know what?
I regret it.
Because I have less saved for retirement now and it’s going to take me that much longer to make up for all those missed gains.
That’s why we are busting our butt with any kind of side hustle or extra income we can generate. The more we can save now the less we will need down the road.
We’re not getting any younger and I don’t want to work until the day I die.
Paying Down Debt: 25 percent
This is a tough one.
If you can’t afford to pay off your credit card every month and you’re carrying a balance, then you’re getting charged interest every month and that hurts.
As of the time of this writing, the average credit card interest rate is 17.41 percent.
If you’re trying to decide if you should use your money to invest or pay off debt, a lot depends on how much you expect to earn on your investments.
You’d be hard-pressed to consistently earn more than 17 percent on your investments. The average return of the stock market over the long-term is about 7 percent, though that is just an average and your individual results could be more or less than that.
But by paying off your debt you’ll be getting a guaranteed return of whatever the interest rate is on your debt/
So, if the choice is between an estimated 7 percent return on your investments and a guaranteed 17 percent return on your debt, the choice seems pretty clear.
Or does it?
What if your company matches your 401(k) contributions?
Matching contributions are like free money and turning them down is not a good idea.
As an example, let’s say your company matches 100 percent of your 401(k) contributions up to 3 percent of your income.
Your match may be different but that is a fairly common match amount.
If you earn $50,000 per year and contribute 3 percent into your 401(k) with pre-tax money, you’ll have contributed $1,500 at the end of the year.
But if your company offers the employer match I described above they will also contribute $1,500 into your account.
That is an automatic 100 percent return on your investment and you have effectively doubled your money.
Unless you’re trapped in some kind of payday loan hell, your debt shouldn’t be anywhere near 100 percent interest.
Check out your company’s 401(k) and see if they offer a match. If they do, you should try to contribute at least enough to get the full match.
Needing More Information: 20 percent
This excuse kind of gets on my nerves.
You don’t need to be a financial advisor to invest in a 401(k) plan, and saving for retirement is so important you should make an effort to learn at least the basics.
You can start with our Ultimate 401(k) Guide which explains all the basics of saving for retirement through a 401(k) in plain English. It contains everything you need to get started.
Once you’ve finished reading that there are plenty of books, websites, and podcasts that will help you expand your knowledge even more.
Wary of Investing in Stocks: 15 percent
Millennials in particular show a reluctance to invest in the stock market.
This is understanding since the market has been such a roller coaster every since they reached an age where they were able to work and invest.
I hadn’t been working that long myself when the financial collapse of late 2007 began. It wiped out a big chunk of my account and for a long time afterwards it felt like I was putting money away just to maintain my balance rather than watching it grow.
Some of my friends abandoned their 401(k) plans altogether when the market crashed.
Unfortunately for them, they missed out on all the gains that followed in recent years.
The stock market is risky and there is no guarantee you will not lose money. But over the long-term the stock market has been seen tremendous gains and unless you’re planning retire within the next few years you have time on your side.
Now what about you? Do you participate in a 401(k) plan? If not, why don’t you?