Employer 401(k) match often not enough for retirement

Expert: Many set to fall short of retirement goals

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While a company 401(k) match can be a valuable fringe benefit, workers can be lulled into a false sense of security by assuming they will have enough funds put away for a sound retirement as long as they contribute enough to receive the employer match.

"Participants should certainly take full advantage of the company 401(k) match, but they should never view it as the company-endorsed or default savings rate that will enable them to reach their retirement goals," said Bob Hapanowicz, president of Hapanowicz & Associates, Downtown.

That happens too often, he said.

"A common strategy among 401(k) participants is to contribute just enough to receive the full company match," Mr. Hapanowicz said. "But in many -- if not most -- cases, this total combined contribution rate will leave them short of the dollars needed to reach their retirement goals."

This is particularly true of older employees who have fewer remaining years to contribute and to earn compound returns on what they have invested, Mr. Hapanowicz said.

Employer 401(k) matching programs vary from company to company. Some companies or nonprofits match part or all of employees' retirement account contributions. It is not mandatory. Like any other employee benefit, the rationale is to entice workers to want to stay with an employer.

A typical matching arrangement is where the company matches 50 percent of contributions for the first 6 percent of the employee's salary. Under this scenario, the company would not match more than 3 percent of the employee's salary.

Other companies provide a straight match up to a certain percentage of the employee's income.

Although it is rare, some companies provide a dollar-for-dollar match on all employee contributions. The company match, in those cases, would be limited only because the employee contribution is limited. The 2014 contribution limit for a company 401(k) is $17,500.

Stephen Gierl, a principal at Gierl Augustine Investment Management in Sarver, Butler County, said while young workers are in the best position to benefit from compound returns in their accounts, financial planning for retirement unfortunately is not a top priority for many of them.

"For a younger person new to the workforce, it is very difficult to think about retirement -- much less put a pencil to paper," Mr. Gierl said. "If we could get a 30-year-old to sit down and run a retirement analysis, it might make some difference."

But some workers should delay making any contributions, said Curt Knotick, founder and CEO of Accurate Solutions Group in Butler. The foundation of any financial plan, he said, is to establish an emergency fund with at least three months of living expenses.

Once the emergency fund is set aside, "Then you can consider beginning to save for retirement via your 401(k)," he said. "Some may say that if you delay, you are simply throwing away free money since the company is matching your contributions.

"And that is true to a degree. But what if you elect to begin to contribute before you have your emergency savings account, and then that emergency happens?"

Tim Grant: tgrant@post-gazette.com or 412-263-1591.

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