Why You’re Insane If You Don’t Max Your Job’s Retirement Plan

A penny saved is a livable retirement income.

Retirement doesn’t seem like an important topic until old age, a lack of assets, and an empty savings fund are looming on the near-horizon. So why bother maxing out an employer retirement account with match? Simple: sunbathing in the park now is a worthwhile tradeoff to be sunbathing in Ibiza in the future.

There’s a serious lack of knowledge about retirement income, meaning that most people aren’t saving enough. In fact, the pros say that the old estimate of saving 70 percent for a replacement ratio might be way off. This figure is closer to 80 percent and even 90 percent for those on the extreme sides of low or high incomes.

Contributing to a retirement account isn’t as important as paying off debt, right? Wrong. Stop with the tired excuses and let’s get real. Those who don’t plan for retirement now are only setting themselves up for a difficult financial journey in the future.

And then there’s this: Employer-matched retirement accounts are basically free money.

Yes, free money.

It’s a no-brainer, but lots of people still don’t take advantage of the opportunity to build important savings for the future. We asked 12 financial professionals for their thoughts on the matter. Here’s what they had to say.

Greg Klingler, GEBA Director of Wealth Management

Why is maxing out a retirement account important?

“Maxing out a retirement account, beginning as early in your career as possible, is important because it’s the most efficient way to grow wealth over time and support an uncertain future—a future, notably, in which people are living longer and longer yet, unfortunately, two out of three adults over 65 will need to pay for long-term care.”

What is the minimum that people should be investing into different types of retirement accounts?

“For those lucky enough to work for an employer that provides a retirement plan with a contribution match, contributing a minimum of whatever that match is—for example, the government’s Thrift Savings Plan (TSP) matches 5 percent—in order to take advantage of this “free money” should be a no-brainer.

“If your take-home pay meets your living expenses, most financial professionals, including me, recommend contributing 10 percent to 15 percent of your salary to your plan given that contributions are tax-free and that, even if you change jobs, you can take your plan with you.

“As long as they’re financially comfortable, employees whose plan offers a tax-free contribution limit, even if it’s above 15 percent, should consider hitting it given that every invested dollar will receive preferential tax treatment. Those without any kind of company match plan should put every dollar that they can towards whatever plan they have, whether from a past job or their own personal plan, as well in order to maximize tax-free opportunities to generate income.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Many people think not having an employer-provided account or having one without a match means it’s not worth opening or contributing to one, that they’re too young to start contributing, or that their contribution would be so small that it’s pointless. All of this is completely untrue, and my best advice for giving yourself the kick in the butt you need to take action is to think about or even write down how long you want to live and all the things you want to be able to do, from visiting your grandkids to going on vacations, on a daily basis.”

Greg Klingler has been the Director of Products and Member Services at GEBA since 2010 and has more than a decade of licensed experience as a Financial Advisor. Greg has been working exclusively with State and Federal Employees since 2003 assisting them in maximizing their retirement plans. He has been a managing producer since 2005 holding a number of titles including Mentor, Branch Manager, Compliance Officer and Director. He specializes in retirement planning using pensions, survivor pensions, employer sponsored insurance, and retirement plans as well as portfolio analysis, estate planning and college planning.

Robert Farrington, creator of The College Investor

Why is maxing out a retirement account important?

“When your employer matches your contributions, it’s free money!”

What is the minimum that people should be investing into different types of retirement accounts?

“Investing in their company 401(k) at least up to the percentage that their company matches. If your company matches your contribution, and you don’t contribute, you’re leaving free money on the table. It’s essentially giving up a percentage of your pay! Plus, saving for retirement in a 401(k) is easy. All you have to do is sign up.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Many people fail to contribute to a 401(k) because they do not believe they can afford it. In reality, they forget to consider the fact that these retirement accounts are funded by pre-tax dollars. So if you happen to fall under a 30 percent tax bracket, only 70 cents will be removed from your paycheck for each dollar that you invest. That money would have otherwise been used to pay taxes. This is one of the best 401(k) moves that most investors tend to ignore.”

Robert Farrington is the founder of The College Investor, which he started to showcase a variety of common sense personal finance and investing ideas to help millennials get free of their student loan debt and start building wealth for their future. He has had a passion for investing and all things related to personal finance since he can remember. When he was about 13, he even made enough income to pay taxes on. While in college and graduate school, he realized that most people were oblivious to investing and personal finance, even MBA students, so he ended up helping many of his peers. It was apparent that the #1 dilemma holding back millennials from investing and building real wealth is student loan debt. This led him to write “Student Loan Debt: Getting in Smart, Getting out Painlessly.”

Samantha J. Anderson, wealth manager at Budros, Ruhlin & Roe, Inc.

What is the minimum that people should be investing into different types of retirement accounts?

“The absolute minimum employees should be investing (or contributing) is enough to take advantage of the entire employer match.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Excuse: I don’t know what to invest in. Answer: Use a target-date fund and/or utilize the retirement resources available with your plan. Target-date funds are typically relatively inexpensive mutual funds that provide a diversified asset allocation that becomes more conservative as retirement (the target-date) approaches.

“Excuse: I am paying off debt first. Answer: Paying the minimum payment on debt is crucial for multiple reasons. However, choosing to make additional debt repayments rather than contributing to your employer retirement plan (and missing out on an employer match) can come with substantial financial costs in the long-term. The employer match, plus years of compounded growth is missed. Also, your funds may grow in your retirement account at a rate that exceeds the interest payment on the debt (the lower the interest rate, the higher the probability).”

Samantha J. Anderson is a CFP™ in Columbus, Ohio. She serves as a Wealth Manager at Budros, Ruhlin & Roe, Inc. where she founded the Women in Wealth Management Scholarship program. She is a past recipient of the National Association of Personal Financial Advisors (NAPFA) New Professional Award and has been featured in various media outlets including USA Today.

Jason B. Ball, investment adviser representative at Ball Comprehensive Planning, LLC

Why is maxing out a retirement account important?

“There is a retirement savings crisis as many people do not realize how much money they will need in retirement and have a significant chance of outliving their money.”

What is the minimum that people should be investing into different types of retirement accounts?

“People should look to be funding around 10 percent to 14 percent of their earnings into a retirement account. For many income earners, a tax-qualified account like a 401(k) with a company match and or an IRA does not have a company match but may qualify for the Savers Credit, and are both good options.

“We hear a lot about the Roth options and we like to think in the terms of the marginal tax rates you will pay on the money you earn. Many individuals are in a lower marginal tax rate when they retire, so the decision to pay taxes now or in the future is highly dependent upon taxpayers own personal situation and lifetime income tax plan.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Money is tight or we can’t afford it. What many people miss is that they may be missing out on a dollar for dollar company match up to say, 3 percent of their salary. They may also be missing out on valuable credits like the Saver’s Credit, which may lower your federal and state income taxes.”

Jason B. Ball, CFP®, ChFC®, CLU® is a registered investment adviser at Ball Comprehensive Planning, LLC. A growth mindset and a passion for learning are at the center of his planning philosophy.

Dennis B. Pellegrini, ChFC, AEP, MSFS at Peak Brokerage

Why is maxing out a retirement account important?

“Maxing out on a retirement account is important because it provides the account holder a tax deferral. Assuming it’s a 401(k) plan that you are participating in, that becomes a great way to invest for your future retirement due to the fact that there is most likely a company match.”

What is the minimum that people should be investing into different types of retirement accounts?

“The minimum that you should invest for retirement is 10 percent of your income. If you are close to retirement, consider 15 percent of your income. In the event that you’re participating in a 401(k) with a company match, invest up to the company match at the very least.

“Always consider a Roth as part of your plan. Having access to tax-free money during your retirement is definitely a plus.

“In the end, just remember that successful people do things that unsuccessful people are not willing to do such as make sacrifices and sticking to a budget. A budget that includes retirement planning.”

Dennis B. Pellegrini has been in the financial industry since 1991. He graduated from Central Catholic as well as Alvernia University where he earned a B.A. in Management & Administration and Bank & Finance. Pellegrini is a Chartered Financial Consultant, an Accredited Estate Planner and completed his Masters Degree in Financial Services from the American College in 2007. Pellegrini was the Chapter President of the Society of Financial Awareness and also appeared on BCTV speaking on the topics of financial planning and real estate investments. He is dedicated to helping Reading area residents restore their wealth and achieve their financial dreams.

Stephen Caplan, financial advisor at Neponset Valley Financial Partners

Why is maxing out a retirement account important?

“Put simply, the earlier you start maxing out your employer retirement account, the lower your investment returns will need to be. For example, let’s assume your goal is to save $1 million by age 65. If you start maxing your 401(k) out at age 30, you would only need to generate a 2.2 percent annual return on your investments. If you wait until age 45, your required return to reach $1 million would be 8.55 percent per year.

“In reality, very few people start maxing out their retirement accounts from the start. However, almost nobody goes from saving nothing to contributing the maximum either. It’s very important to start contributing as much as you can as early as possible.”

What is the minimum that people should be investing into different types of retirement accounts?

“At minimum, you should contribute up to the point your employer matches. This is literally free money from your employer.

“More generally, a good rule of thumb is to use 20 percent of your income for savings or debt repayment. If you do not have debt, use your savings to build an emergency fund. Once you build an emergency fund, contribute what you can to your employer retirement account.”

What common excuses do you hear for not contributing to a retirement account and how do you stop making excuses and take action?

“The most common excuse people make is that they cannot afford to save for retirement. Like anything else, you can always afford to do something if you make it a priority. I have found the easiest way to save for any financial goal is to automatically direct a portion of each paycheck to fund it. This is why employer retirement plans are such good savings vehicles—they automate the process of socking away money for retirement. It’s hard to spend money that never hits your checking account.”

Stephen Caplan spent nearly four years in New York City as an investment consultant, then moved back home to the Boston area in August 2016 to join Neponset Valley Financial Partners as a wealth manager. Caplan has since become an expert on student loan repayment planning and recently earned the Certified Student Loan Professional (CSLP™) designation. His practice focuses on helping young professionals integrate personalized student loan repayment strategies into long-term financial plans. He currently lives in Boston’s North End, where he attempts to recreate his experience living in Florence, Italy, for a semester during college. Outside of the office, he can be found exercising, reading, cooking, and following the Boston sports teams.

Denise Nostrom, ChFC, CLU and founder and owner of Diversified Financial Solutions

Why is maxing out a retirement account important?

“It is important to save for retirement when you can. You do not get a second chance to save, so maxing out sooner than later will give you the opportunity to retire when you want and in the lifestyle you desire.”

What is the minimum that people should be investing into different types of retirement accounts?

“The goal should be to save anywhere from a minimum of 10 percent to 20 percent of your income for retirement. It is great to start with your employer retirement plan, but if you do not have a plan at work, consider opening a Traditional IRA for pre-tax contributions or a Roth IRA for after-tax contributions.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Some common excuses for not contributing to a retirement account is that you do not have money, you don’t know where to start or you just don’t understand how it works, so it is easier to not do anything. Saving for retirement is not like it was for our parents or grandparents, so you have to stop making excuses. Get educated on the various options for retirement by reading books, attending educational seminars or finding a financial advisor to work with you to navigate the waters. You may want to do all three, but get started before you run out of time.”

Denise Nostrom is the President of Diversified Financial Solutions. Nostrom, a life-long resident of Long Island, entered the financial services industry in 1990. She began her career at Smith Barney as a portfolio assistant. She moved onto a smaller firm still working in the capacity of a portfolio assistant. She did not feel that her ambitions were being fulfilled, so she trained to become a Personal Financial Advisor with IDS Financial Services (now commonly known as Ameriprise). She spent just under 4 years at IDS. She made the decision to start her own firm, Diversified Financial Solutions, in 1996 which focuses on personalized customer service. Nostrom works with clients from all walks of life, helping them to improve their lives and follow their dreams. Her philosophy is that with time, discipline and determination you can reach your financial goals and dreams.

Bob Haegele, blogger at The Frugal Fellow

Why is maxing out a retirement account important?

“Maxing out a retirement account is important for two reasons: tax advantages and compounding interest.

“By contributing as much as possible to retirement accounts, you are lowering your taxable income. If doing so reduces your income to a lower tax bracket, you no longer have to pay that higher tax rate. In addition, you’re paying taxes on fewer dollars since retirement savings are not taxed until withdrawn (unless you use a Roth option). And, in either case, your money grows tax-free.

“In addition to all these benefits, compounding interest is a huge benefit. The longer your money sits, the more it is able to grow. And due to compounding interest, it grows at an increasing rate.”

What is the minimum that people should be investing into different types of retirement accounts?

“The minimum anyone should be investing is the maximum amount that their employer will match (if they have a match). Beyond that, it is up to the investor—but there is no maximum amount one should invest. In other words, it makes sense to invest as much as you can (within reason).

“You don’t want to make it so that you can’t make ends meet, but forgoing some discretionary spending will pay off in the long run.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Not being confident in the market. I always like to look at the 100-year history of the stock market. Despite its ups and down, the stock market is at an all-time high overall. And that’s with the housing crisis, Great Depression, etc. We’ve gone through some crazy times, and the market has still gone up. It will continue to have ups and downs, but there’s no reason to believe it won’t continue to go up overall.

“Thinking retirement is too far away/impossible. Well, this is just not true. Now that we have the internet, there are all kinds of blogs with people who retired 15, 20, or even 35 years early.

“Not knowing what your tax rates will be in retirement. This is difficult, if not impossible to answer. It’s true; we don’t know what they will be. I prefer to approach this question this way: do you plan to spend more in retirement than your current salary? If so, a Roth option is better. If not, traditional is better. That’s just a rule of thumb and it gets a lot more complex than that, but that’s how I like to look at it in a broad sense.”

Bob Haegele is a personal finance blogger who blogs at The Frugal Fellow. In addition to personal finance, his blog is about promoting a sustainable lifestyle. That means not only being more environmentally-friendly but also challenging the idea that the 9-5 is “normal.” Having moved to various parts of the US, he is a bit of a nomad. He’s working toward financial independence while blogging and traveling the world.

Jaquetta T Ragland, owner of YoungAndFinance.com

Why is maxing out a retirement account important?

“Prior to beginning my career in marketing, directly after college at the age of 22, I had no knowledge of a 401(k). However, during my meeting with the Human Resources department, I was informed that I had the option to invest.

“At first, I didn’t think it was important to invest in my 401(k) since I was only 22 but once I realized the company would give me money just to save in my 401(k), I immediately realized it was something I needed to do. Investing in your 401(k) should be looked at as an instant pay raise without taking on any additional work. It definitely paid off for me in the long run because now that I’m 33, I realized that the years went by a lot faster than I thought it would.”

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“Common excuses I hear are I don’t make enough money to contribute to my 401(k) or I’m not going to see the money until I am 65 or older. You overcome these excuses by realizing investing in your 401(k) should be looked at as an instant pay raise without taking on any additional work. It definitely paid off for me in the long run because now that I’m 33, I realized that the years went by a lot faster than I thought it would.”

Jaquetta T. Ragland is the owner of youngandfinance.com and is also a licensed real estate agent. She teaches personal finance education to empower individuals to make the right financial decisions in their lives.

Rob Drury, Executive Director of the Association of Christian Financial Advisors

Why is maxing out a retirement account important?

“What is important is that one is as aggressive as reasonably possible in saving for retirement. Specifically maxing out one’s employer-sponsored plan may or may not be the best way of doing that.”

What is the minimum that people should be investing into different types of retirement accounts?

“It makes no sense whatsoever to turn down free money, so one should at least contribute the maximum amount to the sponsored plan that will be matched by an employer’s contribution. Beyond that, the type of account or arrangement should depend on the individual’s particular situation and objectives. Employer-sponsored plans are typically very low on fees and expenses, so that often makes maxing them out an attractive option, but careful considerations should be made regarding fees and expenses, available investment options, expected net returns after expenses, and risk tolerance.

“One of the best reasons to rely heavily on an employer-sponsored plan is the payroll deduction feature that allows saving on autopilot, as all retirement savings programs ideally should be done. Money that is out-of-sight, out-of-mind tends not to be noticed or missed, making saving very painless and consistent.”

Rob Drury is the executive director of the Association of Christian Financial Advisors, located in San Antonio, TX. Drury began his financial planning practice in 1999 after completing a career as a US Air Force officer. Specializing in areas peculiar to the post-retirement market, Drury eventually transitioned to family financial planning, small business consulting, personal banking, and lending. Once serving as a state-certified investment advisor, licensed to provide financial products in several states, he has now left active practice and applies his experience and financial expertise to his life-long passion of Christian ministry.

Dr. Timothy Wiedman, PHR emeritus of Doane University

What is the minimum that people should be investing into different types of retirement accounts?

“Many years ago a finance professor told my class that when we were eligible to contribute to a 401(k) or a 403(b) or a 457 retirement plan where our employer provided a matching contribution of some sort, we should sign up immediately and contribute enough to get the maximum employer match. He pointed out that the employer matching contribution was essentially free money; so not joining a retirement plan under those circumstances was almost like volunteering for a pay cut. Further, for young investors, getting started immediately is critical because they have time on their side so compound interest can do much of the work toward building a solid retirement nest-egg.

“So I definitely recommend that all newly hired employees (especially recent young grads) should investigate the retirement programs offered by their employers!”

Dr. Timothy Wiedman spent 13 years in operations management working for two different Fortune 1000 companies. Dr. Wiedman spent the next 28 years teaching college courses in management and human resources. He holds two graduate business degrees, earned a professional certification in financial planning at Old Dominion University, and often taught a college course on personal finance.

Dr. David D. Schein, Director of Graduate Programs & Associate Professor at the University of St. Thomas’ Cameron School of Business

What common excuses do you hear (or make yourself) for not contributing to a retirement account and how do you stop making excuses and take action?

“I coach my students and others who are fairly new in the workplace. Many new employees are short on funds and perhaps are paying student loans as well as starting their households/families. Therefore, it is tempting to either skip or under-fund their employers’ 401(k) or 403(b) programs. In most cases, employers match 100 percent of their employees’ contributions up to a specified percentage like 6 percent. Others may match 50 percent of the employee contribution up to a specified percentage. In either instance, the employee is receiving a 100 percent or 50 percent return on their investment immediately. This is impossible to get anywhere else. Employees should economize somewhere else, but definitely not short their retirement savings accounts.”

Dr. David D. Schein is the Director of Graduate Programs and an Associate Professor at the Cameron School of Business at the University of St. Thomas. He also is President and General Counsel of Claremont Management Group, a national human resource consulting and training firm, which is celebrating its 30th anniversary in 2019. Dr. Schein is frequently interviewed on employment and business law matters. He speaks for business and industry groups throughout the United States on various current topics. His new book is: The Decline of America: 100 Years of Leadership Failures. You can find him on LinkedIn.

Bottom Line

Taking advantage of employer matches on retirement accounts is basically just saying yes to free money. You’d be crazy not to, so do it!


Have any tips to maximize a retirement account? Tell us over on Twitter at @OppUniversity.