Investors saving for retirement face many obstacles, including high fees, poor investment options, vanishing pensions, and even outright fraud.
However, when workers pass up an offer of essentially free money with no strings attached, it’s hard to find a scapegoat other than the workers themselves.
I recently learned that more than 56,000 Boeing employees fall into that category. Apparently, they would rather give billions of dollars to Boeing shareholders than keep the money for themselves.
Mighty generous.
I came across a notice sent to Boeing employees explaining that they collectively left $98 million on the table in 2013 by failing to take full advantage of the company’s 401(k) matching program.
According to the notice, about 8,400 employees didn’t participate at all, and another 48,000 didn’t contribute enough to receive the full company match.
It’s startling to realize that about one-third of Boeing employees are voluntarily taking less pay than the company wants them to have.
To receive the full match, employees need only contribute 8% of their base pay. Boeing then matches those contributions at the rate of 75 cents on the dollar.
In plain English, set aside $1 and get an instant, one-time return of 75%.
I don’t know why so many employees are passing up this opportunity. Some are undoubtedly young and struggling to make ends meet. Others may be waiting for a time when they feel they can “afford” to save.
Boeing hires brighter-than-average workers. (Anyone who flies across the country or across an ocean certainly hopes so.)
But many employees appear not to have done some very simple math.
Here’s an example.
An employee earning $60,000 a year can receive a 75% match on up to $400 per month. That’s a company contribution of $300 a month, or $3,600 a year.
That’s the equivalent of a 6% raise — a raise I doubt many employees would turn down if it were offered that way.
Here’s another way to look at it.
The $98 million left on the table was for just one year. Stretch that over a decade and you’re approaching $1 billion in lost compensation.
Invest that $1 billion for another 20 years, and it could easily grow to $5 billion — and that’s using very conservative assumptions.
In fact, $5 billion is 50 times as much as the $98 million Boeing paid out to shareholders that same year because employees didn’t claim their matching funds.
And that doesn’t even include the future value of the employees’ own contributions — an even larger number.
Boeing is just one example.
A Harris Poll conducted for Wells Fargo found that middle-class Americans aged 25 to 75 have a median retirement savings of just $20,000.
One-third reported saving nothing at all in a 401(k), IRA, or other retirement plan — worse than the Boeing numbers.
Among those who were saving, the median contribution was just $125 a month.
About half of respondents in their 50s said they expect to work until age 80 because they don’t have enough saved.
More than seven out of 10 said they now believe they should have started saving earlier.
To that, I say Amen.
We can’t change the past. But most of us can still change our future if we change what we’re doing now.
Here’s how to start:
- Do the math. How much will you need to retire?
- Figure out where the money will come from.(It won’t fall from the sky.)
- Claim every dollar of employer matching funds you’re entitled to.
- Have honest conversations with your family about spending today versus living better tomorrow.
If you take this seriously — and get help from an independent financial adviser who doesn’t sell products — you are likely to end up far ahead of where you would otherwise be.
Richard Buck contributed to this article.