So Why Aren’t You Opening A 401K?

by Silicon Valley Blogger on 2007-02-2218

For a while, I wasn’t sure why some people chose to skip contributing to their 401K plans. Certainly, I’ve seen some arguments against funding that trusty old standby that is our company retirement account that may be applicable to certain cases, though not my own. However, we’re talking about 401Ks with extremely well matched funds here. But there are those who still decide to bypass the benefit and nix the offer.

To those of you who find personal finance as familiar territory, it seems like many of the golden rules we hear everyday are often just regurgitated to the point of sheer obviousness. Decisions cannot possibly be made any other way than what’s been drilled into us. Do something different and we’re nuts for resisting free money or refusing the promise of a fat investment account.

401K Account
So why are there quite a number of folks who have decided not to subscribe to all the well-worn advice, in the face of conventional financial wisdom?

I felt obligated to write this after a few debates with a couple of my long-time colleagues who are such hold-outs despite our frequent discussions on finance and benefits, and who still don’t partake of a great retirement plan offered at work. A generously matched 401K may not be that enticing enough for some people. Unfortunately, such a 401K is also not within reach of many.

So what are their reasons for not accepting the up to 6% company match awaiting 401K participants?

8 Reasons For Turning Down A Well Matched 401K

Here’s why people have said No to a 401K.

  1. They don’t have enough money today.
    Among the people I know, it’s the #1 reason for not opening that 401K account. The financial commitment can just be too overwhelming. Since retirement is a tiny glimmer in their imaginations at the moment, they just can’t keep their money hostage. They’ve got a family of five to support on one income, a balloon mortgage and not enough money to go around. Unfortunately, some just feel they cannot afford to save.
  2. A retirement account is not a priority.
    If you have a lot of debt to worry about, there may not be any choice at all. Retirement accounts may be the last thing in your mind while other financial issues take center stage for you. But you may want to investigate whether there is some way to structure your debt programs to allow for savings to take place more easily.
  3. They won’t have any use for it in their golden years.
    There are those who don’t plan on retiring in the United States but instead harbor this dream of pulling up stakes and living elsewhere entirely without being tied to their past. They want a clean start in their fantasy tropical island or European hamlet when they’re old and gray without having to worry about being fed checks from a bureaucratic outfit. I don’t necessarily see holding companies as trouble to deal with, but you’ll be surprised by those who want to simplify their financial dealings with anyone as much as possible! They’ll keep their money under their mattress if they could!
  4. They are distrustful of any employer and desire full control of their money.
    Based on some scary business headlines of the past screeching “Good Companies Gone Bad!” or some such thing, there are folks who have shied away from company controlled personal accounts. There are those who don’t trust their employer, with thoughts of Enron, Color Tile and even yesteryear’s IBM spinning in their minds. They want full control of their money and would like to deal with it any which way they’d like.
  5. They want full flexibility and richer fund choices.
    Unfortunately, not all 401K benefits plans offer the greatest fund choices, and this can be a turn off. However, I try to keep things simple and usually just use index funds in my retirement accounts or try to find a similar fund as an alternative. Index funds are ubiquitous and are typically found in retirement benefit plans.
  6. Some don’t understand how it works.
    Some just don’t get how it works so they don’t participate. I still remember the day when I got my first job and first heard about 401K accounts. Needless to say, I was quite bewildered about the whole thing. I deferred participating in the 401K until I understood what it was all about, but that took a while due to some inertia. I got distracted with other matters and didn’t take the time to learn about our company benefits until much time…and opportunity had past.
  7. Many just quietly forget about it.
    This is not a very good excuse. Similar to the previous reason, you could actually be too busy to remember to fund that 401K. It’s another point of procrastination for many people out there.
  8. They don’t plan to retire anyway; they want to work till they drop.
    So there are those who figure, with money tight, they’re bound to be working through their old age anyway. So why bother with retirement plans? Surprisingly, I’ve talked to co-workers who are resigning themselves to some such fate already!

Indeed, as I mentioned earlier, there are other reasons for arguing against a 401K (albeit an unmatched one), particularly those touching on taxes. Let me tell you now that this won’t apply to our situation since we currently cap out at the maximum tax rate, and any dent on our AGI today is worth the risk of underestimating nebulous tax policies in the future. I also doubt I’d try to get my money out earlier than permitted. I’d try other ways to get the money I need before touching my retirement accounts. Upon leaving jobs, I’ve also done transparent rollovers to an IRA whenever I had to, where I got full control of my funds; though for convenience, many of my previous employers simply allow existing accounts to stay parked where they already are. And lastly, I always buy index funds in my retirement accounts so fees are predictably low.

Here’s yet another article voting against 401Ks for reasons that are more macro-economic, and which I wholeheartedly disagree with, but hey, each to his own.

If you’re unable to get a 401K for other reasons, say if it’s just not available through your employer, try to build up your nest eggs some other way if you are able. With all the changes these days in government policies that encourage more self-funding of our retirement plans and so forth, it’s imperative that we take advantage of what’s offered to us in terms of tax shelters and company matched benefits. Even though I look forward to a life on a tropical island one day, I would still prefer to have it funded by my company fund or rollover IRA rather than some income generating job under the sun.

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 15 comments… read them below or add one }

Lazy Man and Money February 22, 2007 at 1:34 pm

My argument was with an un-matched 401k. I would love to get some kind of matching. I don’t really feel that any of these are a good reason, with the exception of not having enough money today. For instance, if you have a payday loan outstanding, it’s probably a good idea to not fund a 401k. Other than that, it’s a nice way to instantly 50-100%.

If you ever plan on moving jobs a few of the better reasons here go away.

Silicon Valley Blogger February 22, 2007 at 1:42 pm

Lazy, yes there are some provocative arguments for an unmatched 401K as you have pointed out. I’ll make that distinction clearer in my post. And yes, I wrote these points down as reasons, covering both acceptable and questionable ones. Some are no longer reasons but excuses it seems.

Moneymonk February 22, 2007 at 2:40 pm

Back when every job had a pension, this would have not been a topic.

I agree with #6 Some don’t understand how it works.

Most youngsters do not understand stocks and bonds and the employer wants them to choose their allocation. It can be confusing to some.

Having to much freedom is sometimes bad.

With pension funds everthing was taken care of. You just simply had to work.

Some people just need to be told what to do, for as how much to contribute and what to contribute in.

When you give people freedom, it’s easier not to contribute at all.

Char February 22, 2007 at 7:54 pm

I really need to set up a retirement account for myself but am 100% self employed (I did incorporate). Any recommendations?

Silicon Valley Blogger February 22, 2007 at 9:22 pm

Char, please check the small business section of Maybe a SEP-IRA or one of the other account types will be suitable for your needs. I was self-employed at one point and went this route.

tim February 23, 2007 at 2:29 am

even with non matching plan, i had my wife max out her 401k to lower our tax burden and to get us under the ceiling for maxing out our RIRAs. also, her 401k was outside of the company in a wide variety of investment choices. i think people are more than rightly concerned about matching 401k in company stock after enron and worldcom.

Golbguru February 24, 2007 at 5:28 pm

I don’t have 401K…but I don’t have a real job either. But I am sure I am going to raise the 401K topic during the “negotiation” phase of my interviews (whenever that happens). 🙂

Btw, you must be knowing this…but right now my savings interest is not I earn a 5.05% net on what’s in my account. That’s not bad considering I have absolutely no risk to take…and nothing to worry about. 🙂 …So in the current situation that replaces my retirement fund.

Eagerly waiting to get a job in a company that matches my my 401K contribution. I think I am pretty sure of rejecting job offers that won’t give me that match.

dimes February 25, 2007 at 11:51 am

I’d love to have a 401k. The spouse has one but his is unmatched, so we both opt for Roths instead. I am amazed when I see people who put a whopping $300 in their 401k in a given year and call it good. That’s only $25/month. They probably spend more on pizza and beer.

Michael December 23, 2007 at 11:09 am

The real problem with 401k’s is that I don’t believe people from Gen X and especially Gen Y will ever see the money. The government has confiscated the wealth of the people on multiple occasions, with the gold confiscation act being the most obvious. Eventually, the ponzi scheme of fiat currency will fail and the stupidity of chasing millions of worthless dollars will be exposed. Meanwhile, people’s savings are being eroded (confiscated) by the perpetual printing of money (40B yesterday) which makes the logic of working to chase ever more of these dollars that much more futile. Once the boomer generation begin to literally drain the system of money, where do you think they will get it? That’s right, America is 9 trillion in debt (about 3 billion a day) and sooner or later, President Chelsea Clinton will have no problem whatsoever grabbing all that money sloshing around in people’s 401k’s. There is a big unknown with future tax rates, and at the rate we are approaching socialistic government, I can almost guarantee they will be FAR higher in the next 20-30 years, so the advantages of the 401k pre tax savings will be wiped out when you attempt to wthdraw the funds under the new world order government.
It all sounds, to the regular reader, crazy. That’s because most people lack even a rudimentary understanding of money.
To conclude: Under the CURRENT understanding of money (what’s been drilled into us by boomers) 401ks make sense, but they have mismanaged our country to the point where financial independence may be impossible to achieve by the normal means (work hard, save, pray for an ever increasing interest ponzi scheme by printing money). The rest of the world is moving AWAY from the dollar, so why should I struggle daily to save more of them and hope the Fed will print me up some more to pay me “interest” on a useless piece of paper?

Prepare yourselves for the decline of the dollar, the move to the Amero currency, a north american union or perhaps a one world government. What do you think your 401k will be worth then?

Michael December 23, 2007 at 11:20 am

A quick Google search yielded this as evidence to my rant. Go ahead, plan, invest, struggle, save. They’ll change the rules.

Ron March 6, 2008 at 4:16 am

When do you think the Feds will implement the Amero currency?
Do you think the Amero will be just as worthless as the current dollar? Do you think things will be far worse if they do bring in the Amero?

What things can we expect to see (economy, society, housing, food, energy, foreign relations ect..) when they do bring in the Amero?

If I were you I would start buying gold and silver coins which I am.
Because those coins will be worth more than the dollar and the Amero.

Michael May 13, 2008 at 9:34 pm

The Amero implementation is anyone’s guess, but it probably isn’t far off. Think about the absolute mania surrounding Obama. If he walked up to half these idiot twenty somethings who froth in crowds for him and said, hand over your 401k, your gold and your first born and I’ll give you the Amero, they would do it. I’ll say this as a layman prediction: If we don’t see the Amero within about 5 to 10 years, it might not ever happen, at which point we’ve completely descended into the Matrix and are totally financially controlled by the PPT.

Matt June 13, 2008 at 11:35 pm

Agreed, now is a good time to invest in precious metals as an hedge against the declining value of the dollar.

Rose December 31, 2008 at 2:23 am

Now I think it has reversed. The dollar value is increasing day by day.


Cassie July 27, 2012 at 12:04 am

It worries me to think about what my parents are going to do about their retirement… I’m in Gen Y, but I’m already thinking about what I’ll do for retirement. I feel like I should make a plan while I’m still young. I would invest in stuff if I had the money. 🙂

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