How Millions of Americans Are Saying 'No Thanks' to Free Money

In these tough times, many workers are passing up free money. According to a newly released report from Aon Hewitt, (AON) nearly 30% of 401(k) participants are not contributing enough to get their full employer match.

Aon Hewitt surveyed more than 3 million employees eligible for plans where employers will match workers' contributions to a retirement account. FINRA, an independent regulator for all securities firms doing business in the U.S., analyzed the data. The organization found that many of those who are missing out on the opportunity are young--from 20- to 29-year-old. Others were automatically enrolled into employer-sponsored defined contribution plans and likely aren't aware of matching plans.

"Free money is free money -- it's a good thing" says Gerri Walsh, FINRA vice president for Investor Education. "Putting in a little more will give you a lot more."

Double Your Investment -- Instantly

If you think a corporate match is no big deal, FINRA helps you do the math with this example that should make you think again. Say you're 30, make $40,000 and contribute 3% of your salary -- $1,200 -- to your 401(k). Assume that you continue to make the same salary and contribute the same each year until age 65. After 35 years you will have put $42,000 in your account. However, if you're like many people who get a dollar-for-dollar match up to 3% of your salary and take full advantage of the match, that doubles your money to $84,000. And that's before factoring in profits on your investments, so the gains might even be bigger. Of course, as with any investment, you can lose money too. But you are certainly starting out ahead of the game with those matching funds.

If you're not contributing enough to get your employer's match, why not?
I can't afford to.1 (25.0%)
I plan to increase my contributions next year.1 (25.0%)
I didn't know there was an employer match.1 (25.0%)
I don't contribute to my 401k at all.1 (25.0%)

Then there's the matter of taxes. With a traditional 401(k), you hand over pre-tax dollars. In addition, your contributions, any match your employer provides and any earnings in the account are tax-deferred -- you don't owe any income tax until you withdraw from your account, typically after you retire. At that point, you'll probably be in a lower tax bracket, making the pay-up less painful.

It's a shame that so many people with 401(k)s aren't getting the maximum padding for their savings -- but at least they're contributing. In a new survey by Synovate, on behalf of LIMRA, a research, consulting and professional development firm for life insurance and financial services companies, 40% told pollsters they contribute nothing to their employer-sponsored plan.

A glance at the results of Synovate's survey generates one big question: Where are the women? Overall, more than 20% fewer women contribute to their employer-sponsored plan, and they're more likely than men to contribute less than 3% of their earnings (19% vs. 13%, respectively). They save less, despite their strong likelihood of having lengthier retirements than men.

Long gone are the good old days when most people had a defined-benefit pension, and in the future, there's a significant possibility that Social Security benefits may be quite different. "The responsibility for retirement security falls on individuals more than was the case for earlier generations," laments Matt Drinkwater, associate managing director for LIMRA Retirement Research. "Despite the volume of education on this subject, people still are not saving enough."

What's even more alarming, says Drinkwater, is that even among those on the brink of retirement, in their late 50s or early 60s, there's a sizable proportion who aren't saving. And they are running out of time to do so. "If they aren't saving, many will face a very different living standard in retirement and could become a burden on others."

A Long Pattern of Insufficient Saving

It's likely too, that if you're not contributing to your 401(k), you aren't contributing to any other savings vehicle either: You're likely living paycheck to paycheck. "You will certainly be between a rock and a hard place when it comes time to retire," says Wayne Copelin, founder and president of Copelin Financial Advisors.

Those hunting for the reason for the lack of participation in 401(k)s might expect to find an obvious scapegoat in the poor economy, but surprisingly, that's not the real culprit: These numbers have been consistent for years and years. Investing newbies can feel intimidated, some are having trouble managing their money, and others don't see how they can stretch their budget to save. They all could use some help. And with the new higher contribution limit of $17,000 for 2012, there's no better time than now to begin.

"Employers need to step up and educate their workforce and explain the importance of long-term saving," says Copelin. "Twice a year, on company time, employers should make time to talk 401(k) basics, because that will spur employees to want to act."

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Happy New year every one.
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December 30 2011 at 12:21 AM Report abuse rate up rate down Reply

Wanna know why we are not doing contributions? Because its a SCAM! Companies treat workers badly so positions are temporary at best. Rolling over 401K's is a pain and that "free money" has to Vest over a period of time before you get it. So in reality its easier to do a Roth IRA or money market account and not have an employer dependency on the investments.

October 23 2011 at 4:54 PM Report abuse rate up rate down Reply

I'm evan / idiot / crazy / mess.
For the record I must confess.
Forget the lie of change and hope.
I am just Obama's dope.

October 23 2011 at 3:49 PM Report abuse -2 rate up rate down Reply

GE JEFF shipping more jobs to China on a daily basis. Thanks Barry Soetoro.

October 22 2011 at 6:53 PM Report abuse -1 rate up rate down Reply

Hope and change cashing in 401k's nationwide. Thanks Barry Soetoro !!!

October 22 2011 at 6:52 PM Report abuse rate up rate down Reply

You can't eat a damn number stuck in a computer somewhere that says you have more money than you have. Let's light bill...put more money in 401k. Feed the in 401k. Damn it's hard to decide.

October 22 2011 at 7:58 AM Report abuse +5 rate up rate down Reply

If you have everything paid off, House, Car, Credit Cards, you don't owe anyone anything, then invest. If you invest in good stocks and mutual funds that pay a good dividends, you don't loose money unless you sell them. Yes, when the stocks dropped, my stocks were down 30%, but now they're back up. When BP dropped, I purchased more, now they're back up. If you got Ford when it was $1.98 now it's $12. I got American Airlines (about $500 worth) and sold a couple days later and made 80%, after taxes almost made $380 profit. But back to Dividends, most of the time they stay the same, 100 shares of: MRK=$152 a year, PM=$308, BP=$168, But you need to do Your homework for your self. Start small with money you can loose. And No, I don't work for a broker, I do my own homework. Like any "job" the harder and longer you work at it, the more you can make, But Don't Use Money You Can't Afford To loose.

October 22 2011 at 6:41 AM Report abuse +3 rate up rate down Reply
1 reply to mrbjaw's comment

Your posts are correct.
But did you know that Lose and Loose are the most mixed words in the English language?

Lose : when you can't find something or the item is misplaced,or the loser in a sports competition.
Loose: when something comes apart when it's not tight, or the chain comes loose it will come off the sprockets . GET IT?

October 22 2011 at 7:02 PM Report abuse -2 rate up rate down Reply
1 reply to billyjoeobama's comment

Sorry for the misspelling, but I am a product of the....plublick skoul sistem, were eye got a more better edgeamacation. Sum day mi spellin will get more better, but fur know, I'll have to work on dat.

October 23 2011 at 10:37 AM Report abuse +2 rate up rate down

You know that is not ture, Money that you put in are there but then when things goes bad like bad stock market can lose it all. By the way its not free money , you still pay taxes.

October 22 2011 at 4:25 AM Report abuse +1 rate up rate down Reply

Will the US government be able to support this fund and pay back the people that invest in this fund? Will this fund money be spent as our social security money was spent by our mindless politicians in Washington?

October 22 2011 at 4:15 AM Report abuse +3 rate up rate down Reply

I must say I made a ton of money in the market in the past and just this week I gave this advice to my children. I agree if your employer will contribute to a match do it. But if you have no match don't contribute ANYTHING. Why because in my opinion this is all a scam. O.K say 3 years ago you had $100,000 now that 100 is worth $50,000. Now every economic advisor will tell you YOU MUST KEEP INVESTING. You'll never be able to retire. So you keep investing and in 3 years that $50,000 goes to $70,000. Oh oh another downfall so the $70,000 drops to $35,000 and the advisors keep say YOU MUST KEEP INVESTING. See the scam here is to never take all your money at once. Why because if they wiped you out you'd drop out completely. This way they can bleed you slowly enough that you keep investing. The ultimate plan is you'll never be able to retire you work till you die and that way the banks and the government get EVERYTHING!!!!!! AM i THE ONLY ONE WHO'S NOTICED THAT THESE FINANCIAL MELT DOWNS ARE HAPPENING EVERY 2-3 YEARS while in the past they happened every 10.

October 22 2011 at 3:54 AM Report abuse +3 rate up rate down Reply
1 reply to shorthosep's comment

You are about right, but if you keep an eye on the market like every day, and your own investing in "good" stocks there is money to be made. A financial advisor, at the most, will only look at what you have the day before you go to meet them, or if you call them. You have to do your own homework. A 401 K is only good if you can not save money on your own, it's like people paying more in income taxes each week, so they can get a lump sum back the next year, all they're doing is giving the government a intreast free loan.

October 22 2011 at 6:55 AM Report abuse -1 rate up rate down Reply