The US inflation rate last year was “officially” 2.1% — but arguably higher — while the average pay hike was just 2.9%. Maybe that’s why, when it comes to job complaints, surveys show that employees grouse about their paltry paychecks more than anything else. Ironically, 29% of all workers — and 43% of twenty-somethings — unknowingly turn down free money each year because they don’t contribute enough into their 401k retirement plans to qualify for the full company match.
The bottom line: The average 401(k) match is 3%, so employees taking advantage of it for the first time essentially doubled their pay raise — if only for a year.
Photo Credit: Kathleen Waters Photography
Modest Money says
Yeah I don’t understand why people don’t max out that employer 401k matching. I’ve never been at a company that was big enough to offer that. A lot of people in their 20’s just aren’t mature enough to start saving though. They want to keep up with any of their friends that are blowing a lot of money and live the biggest lifestyle they think they can afford.
That’s pretty judgemental. I think you’re playing into stereotypes. Maybe people in their twenties just don’t have the earning power, are trying to start their lives, or position themselves for a better, more prosperous future. That means buying homes, getting married, going to college, etc. Seems these types of things would be harder on the pockets of twenty-somethings more than trying to keep up with friends. Of course, you might just say that doing the things I mention is “keeping up with friends.” Meh.
Bret @ Hope to Prosper says
At my last company, they never gave anyone raises. Employees had to literally beg or threaten to leave in order to get a raise. After two years of hard work for them, I decided I deserved a raise. So, I went out and got a better paying job.
As for 401K matching, I haven’t gotten that since the 90s. Anyone lucky enough to get 401K matching should take full advantage. It’s free money that’s tax deferred. It doesn’t get any better than that.
I’m contributing just enough to my 401k to collect the full company match. 🙂
Now that the mortgage is paid off, I’m considering an increase in contributions, but I have to balance that with the knowledge that my employer is training people in the Czech Republic to do my job – Oracle Database Administrator. If a layoff is imminent, I’d rather build up cash or near-cash.
A 2.9% average pay hike? Wow, wish I got a raise that big. Meanwhile in India, pay-raises are expected to be in the 5% to 20% range this year. This is why my employer is making plans to send new off-shoring work elsewhere. Indians have figured out they can demand great raises – at least in the short term. That gravy train will be coming to an end in a couple of years or so.
I would freakin LOVE a 2.9% raise. My income has gone down by 16% since I was laid off from a lovely job (which had a 401k with 6% matching) in 2008. Thank you, housing bubble. After 4 months of unemployment, I happily took a job at what turned out to be a horrible company (0% matching), which lasted exactly 18 months before I was laid off again. Fortunately I knew the layoff was coming and had another job lined up already. I’ve been here over a year and I love this place. Even though my salary is smaller, the company is great and the benefits are great ~ 4% matching, 100% employer-paid insurance, and since the company is employee owned, profit sharing and ESOP. 🙂 I always contribute fully to any 401k match!
And for the even luckier? Company stock purchase plans usually give you a bit more than a 1.5% raise, depending on the program (that’s a minimum).
Cherleen @ My Personal Finance Journey says
Where in the world are the companies that offer 401K matching when I was still in the corporate world? Lucky for those whose employers give this kind of benefit. Congratulations you found them!
Usually it’s the very large corporations that offer some sort of 401k match.
When I worked for Honeywell, I believe they offered a match, but I was in my twenties at the time and didn’t care (wish I could go back in time and slap my silly self).
BellSouth – when it existed – had a 401k match.
EDS – when it existed – had a 401k match. EDS was bought out by HP, which I believe has a match.
AT&T has a match.
Yeap, I’m going to miss that 401(k) match when I quit my corporate gig.
I consider myself very lucky to work somewhere with a great 403(b) matching program. If I contribute nothing, they put in 5%. Then they match up to 5% of what I put in. So a 5% contribution turns into 15%. I do an additional 5% voluntary contribution as well, but I’m torn between leaving that be & reaping the tax benefits of it now and cutting it to put it towards a Roth IRA for tax benefits later.
As for raises, the range of annual raises is usually 2-3% (if you get really good reviews), so it’s barely keeping up with inflation. After taxes, 403(b) contributions, etc., that would result in me only seeing about $60-70/month more. Meh. The only ways for me to get a significant raise are to move to another department or get a title bump-up where I am. I like what I do and where I work and don’t want to have to try to find another higher-titled position, so I’m working VERY hard to argue for a higher title this year – I’m building up a portfolio that will hopefully make it clear that I deserve a bump in position that would give me an instant $5-10K salary increase.
re:403 b : they are great! However, I used to do that, then a deductible traditional IRA one year, nest year a Roth…for about 15 yrs. The years of the Trad IRA, I’d get a lot back to invest in the Roth the following year, plus have a year’s time to save to add more to the 403b and the upcoming Roth. Just a strategy to think about. Started ths in 1992 or so, and one of the nicer results is that approx. half of all this will be tax free in retirement, tho not there yet. Most of my friends seem to be “going broke” paying the taxes to convert the Traditional IRA’S to Roths these days…Best wishes!
I wish my employer offered a 401k. Sadly I’ll just have to invest in my Roth IRA. I asked for a raise over 6 weeks ago and I still have not receieved an answer, so it’s not looking too good.
RD Blakeslee says
The best kind of pay action in my opinion is to start paying oneself. Stop working for “the other man”, as soon as possible.
You will really control the capital (land, whatever) you have acquired and it will be there when you retire.
I’m a boomer so I predate things like 401k’s, and electricity. But we had a “savings plan” that matched up to 12% of your pay at 100%! It also paid a high guaranteed annual interest rate of around 10%. And you could take the money or any time you wanted, no requirement to wait until you were 59 1/2 years old. It was truly free money. I will never forget finding out one of the engineers I worked with telling me he couldn’t afford to put in 12%. This was a guy making big money, not married, no student loans and who drove a very expensive turbo charged brand new sports car. I marveled that anyone “couldn’t afford” a twelve percent raise! Great post, I guess people are still making the same sort sighted mistakes. But this post may just wake some people up. Well said!