4 Reasons to Save in your Company Sponsored Retirement Plan

Share Post:

Share on facebook
Share on linkedin
Share on twitter
Share on email

So your company offers a retirement plan for its employees.  That’s fantastic!  But why should YOU put money away into it?  You’ve probably heard both good and bad things about your plan.  In what follows I’ll answer a few of the objections to investing in your company sponsored retirement plan and 4 MAJOR reasons you should consider contributing:

Free Money

There are several different company sponsored retirement plans (401k, 403b, SEP, SIMPLE, etc) and depending on your employer they may offer a company match.  A common match on 401k plans would be 100% up to 3%, then 50% up to 5%.  This means the company will match dollar for dollar on your first 3%, then 50 cents on the dollar up to your next 5%.

For example if you make $50,000 and you contribute 5% to your plan, then your employer would match you 100% on your first 3% (3%), then 50% on your next 2% (1%) for a total of 4% or $2,000 over the year.  Let’s say you work for that employer or another employer with the same match for 20 years and are able to invest that money to get 8% return.  Just counting your employer’s contributions you’d have a nice $91,523 from your employer.

Time Value of Money

There is no time like the present to begin saving.  You’ve heard it from everyone and their dog that you don’t need to save a lot if you have time on your side.  Some of you reading this are thinking, but Matt I don’t have a lot of time on my side.  If that is you allow me to illustrate a savings period of 10 years and what that could mean for your savings plan.

Let’s use the same person making $50,000 a year.  In this example you are able to save 15% to your retirement savings plan and your employer matches you 4%.  You are able to get an 8% return on your investment over this period of time.  At the end of this 10 year period you’d have a nice chunk of $137,622.34 for your retirement.  Is this enough to retire on, probably not, but it gives you a nice starting point to supplement social security and pension money.

What about the younger person who has 30 years of accumulation?  Well that person who saves 10% of their $50,000, their employer matches 4%, and they earn an 8% return would have $792,982 for them in 30 years.  Now several of you read this and may think two things.

1. What if I can’t save 10% every year?  I mean I’m going to have kids, I’ll need to buy things, and life will happen.

But what if you could save more than 10% in other years.  My point in this isn’t that you need to make yourself poor on a monthly basis in order to accomplish your financial goals. My point is that by being diligent in a strategy you could accomplish your financial goals.  Is there a cost to it? Absolutely, the cost is sacrifice today for your future needs.

2. Matt, you didn’t account for inflation. 

This is correct and over this period of time it effectively cuts the purchasing power of this money in half using a 3% inflation assumption.  Surely you’d agree with me that saving something is better than nothing.  This also illustrates that maybe saving 10% isn’t enough.  As a general rule of thumb I recommend saving 15% of your income towards retirement.

Tax Advantaged

The difference between saving in your 401k and an individual/joint investment account is the tax advantage.  There are two different options for this: pre-tax (traditional) or Roth.  Not all plans offer Roth as an option. The difference lies simply in when you pay the taxes: pre-tax – pay the taxes when you take the money out, enjoy tax deferred growth, Roth – pay the tax when you put the money in, enjoy tax free growth.

Pre-tax isn’t necessarily better than Roth and Roth isn’t necessarily better than pre-tax.  The answer to what is best for you is multi-faceted.  If you believe that income taxes will only rise in the future, then you might be best served using Roth as you’ll pay the taxes today at the lower tax rate, then take distributions in the future tax free when taxes are higher.

If you believe income taxes will be lower or at least you’ll be in a lower tax bracket, then you might be best served using pre-tax as you’ll get a tax deduction in the year you make the contribution, then take distributions in the future at the lower tax bracket.

The IRS agrees to give you these tax advantages as long as you earmark the money for retirement (after age 59.5).


We are all creatures of habit and it is easier to not spend money if it never hits your bank account.  This is the last reason you should enroll in your company sponsored retirement plan.  Most of your plans likely allow you to simply enroll in payroll deduction meaning all you have to do is tell them how much you want to contribute to your plan, then it is deducted from your paycheck.

In conclusion the goal is to save for your future self.  I have often heard that a contribution into your retirement plan is paying your 65 year old self.  Consider these reasons among others as reasons you should save today.

And, as always, feel free to reach out to discuss your company sponsored retirement plan. 

Stay Connected

More Insights

The SECURE Act 2.0

The SECURE Act 2.0 has brought a myriad of changes to many aspects of retirement savings. The act increases several contribution limits, allows for previously allowed transactions such as rolling over 529 funds into a Roth IRA, alters the rules of Required Minimum Distributions, and much more. Like any change in tax law, it also presents new planning opportunities. The changes covered are by no means comprehensive, but rather the ones we view to be most significant for individuals and families who are particularly intentional with their retirement savings. The changes are broken down into categories most relevant to pre-retirees vs. retirees and those that affect everyone to a relatively equal extent.

2022 Year In Review

The year of 2022 saw the beginning of highest inflation our country has seen in 40 years. To combat this inflation, you saw the Fed raise rates 7 times, increasing rates 4.25% over the past 12 months. As always, financial media had you on the edge of your seat, begging you to abandon your long-term, goal-focused strategy at the latest news.

The Gift of Financial Literacy

During this Holiday Season, consider giving the gift that truly never stops giving, financial literacy. Whether you’re 8 or 80 years old, there is always something new you can learn about finance that can help you advance. You are already doing your part in achieving your own financial literacy if you are reading this and subscribed to our blog and newsletter, receiving financial content straight to your screen twice a month. In what follows, we’ll highlight a few gift ideas around financial literacy that you can gift the people you love, who may be at various stages of their lives

Get updates

Stay Connected

Sign up for our newsletter to stay up-to-date on our financial planning resources.