Why Aren't You Maxing Out Your 401(k)?
With the downturn in the economy, there has been a rise in the number of people who are choosing not to put money into a 401(k) plan. A 401(k) allows a person to save for retirement by having a portion of their paycheck paid into their 401(k) account. In general the person does not pay income tax on the funds that are deposited into their 401(k): the money is not taxed until it is withdrawn from the account. In this way the investor can earn interest on money that they otherwise would have paid to the federal government.
While opening and maintaining a 401(k) was once seen as the responsible thing to do with one's money, this is no longer the consensus. Many people are opting out of their 401(k) accounts for a variety of reasons. Some people are quite simply feeling the economic crunch and feel they have no other option but to withdraw from or choose not to open a retirement savings account. While these people acknowledge the benefits of saving for retirement, they feel that they cannot afford to be so forward-thinking. These people have bills amassing today and are not likely to receive a raise in the near future as companies tighten their belts. They may be victims of adjustable rate loans or they may have accumulated some unforeseen expenses. Regardless of their particular circumstances, these people share a common sense of urgency: they need to pay bills now.
Some companies offer a matching program for their employees' retirement savings. After a set number of years, the company will match the contents of an employee's account. Some people consider this an excellent incentive to save, but not all companies have matching programs in place. For people whose employers do not offer a 401(k) match, it is often easier for them to decide not to contribute to a 401(k). Without a company incentive they see no reason why they should allow a portion of their money to be funneled away from them each month.
Still other people are choosing to manage their own retirement savings, outside of the options that their employers offer. These people have heard horror stories about people putting away money through their employer's programs for their entire career only to later find out that they have not saved enough. This may have happened to them because the limit of money that they were allowed to save each year was too low or because their cost of living at retirement was higher than they thought it would be. Whatever the reasons were that these people came up short, they found that they either could not retire when they wanted to and they had to work for a few more years, or they found that they could not retire completely and had to work a part-time job in order to make ends meet. For many, these stories of the elderly being forced to work beyond retirement age is enough to make them turn away from the 401(k) and search for other, more aggressive savings plans.
