Making the most out of your 401k - How 1% nets a 50% ROI

posted by Brian Mudd - 

Making the most out of your 401k - we've gotten a lot better but for millions 1% more could mean an immediate 50% ROI:

Bottom Line: The not so good news is that over 50% of people with 401k plans still aren't contributing to them. The better news is that for those who are we're doing a lot better than we used to. 

According to the 2017 Universe Benchmarks Report, 79% of those who are contributing to a 401k plan are contributing enough to at least hit the maximum employer match. In fact the most common outcome is contributing more than the employer match. Here are a few highlights:

  • 49% contribute more than employer match
  • 30% hit the employer match
  • 21% who contribute but don't max out the employer match

Not surprisingly, the older one is the more likely they are to contribute a greater percentage of what they earn. The irony is that the average person would actually do better by reversing those trends. You're best off by contributing as much as possible, as early as possible, to benefit by the compounding effects of your investments. For the majority of those who aren't hitting the max match, a 1% increase would do the trick. It's hard to imagine that wouldn't be doable for just about all involved. I've long offered up this challenge to those not maximizing an employer match in a 401k...

For one month hit the max match in your 401k, and if you really can't afford to meet all of your obligations/needs for the month back it off (but try it first). In nearly 20 years of offering up that challenge I've yet to have someone tell me they couldn't afford to do it. So if this is you - go for it. You'll likely be pleasantly surprised. 

Brian Mudd

Brian Mudd

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