I'm behind in retirement savings. Will a new 401(k) plan solve my problem?

Peter Dunn
·4 min read

Dear Pete,

I have about 15 years of work left in me, and I'm still behind in retirement savings. I have a friend whose company is aggressively hiring, and the 401(k) match is significantly higher than my employer's match. I think my friend's company has a 6% match and then at the end of the year they put in another 10%. If I can get a job there with a comparable salary, I could solve my retirement funding problem. Based on my qualifications, I think I could easily get a job there. When I think about it, there's nothing keeping me at my current job. Does this make sense?

Rebecca, St. Louis, Missouri

Answer: Run. No seriously, run and apply for a job at your friend's company. If what you're saying is true, it will absolutely save the day when it comes to retirement.

Sure, there are a few hurdles that I'll cover in a moment, but if you can overcome those hurdles, get ready to hand in your two-week notice.

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There are so many factors to consider when evaluating job opportunities, and you are wise to put the 401k match near the top of the list.
There are so many factors to consider when evaluating job opportunities, and you are wise to put the 401k match near the top of the list.

What does a 6% match really mean?

First, make sure the 401(k) details are what you think they are. I've found the average person struggles to articulate the accurate details of their employer-sponsored retirement plan. For instance, a 6% match should mean the company matches 100% of the first 6% of the employee contribution. However, sometimes the employer match is described as 6% even though the employer only matches 50% of the first 6% of the employee contribution. That's not a 6% match; that's a 3% match. Confusing? Probably, which is my exact point.

You also need to learn more about the 10% end-of-the-year contribution. I've seen this in various forms over the years and is often a form of profit sharing. Very rarely is the company contractually obligated to make that 10% contribution, as it's usually discretionary. That's not all bad though. Each organization has a track record of how often they hit their 10% discretionary goal, and you just need to find a reasonable level of comfort with that.

It's also worth noting you should take time to ensure that the culture of the organization, pay, and other benefits are commensurate with your current culture, pay, and benefits. If you can check all those boxes, pursue the new gig.

Generally speaking, people should contribute no less than 10% of their pay to their company-sponsored retirement plan. And when combined with an average match of about 4%, you have an annual contribution of 14% of your annual pay. If a person, along with their employer, were to contribute 14% of their pay toward a retirement account throughout their career, they would have a tremendous chance at retirement success.

But when a company itself contributes 16% of pay toward a retirement account, you have a chance to create an exceptional amount of wealth, or in your case, make-up for lost time. Your goal should be to match their contribution.

401(k)s a top factor in choosing a job

See if you can contribute at least 16% of your pay to the retirement account. That would mean you're investing the equivalent of 32% of your annual pay for the future. Wow. Depending on how far behind you are in retirement savings, you might make up your deficit in no time. You could accumulate an additional 5 times your salary in your retirement account in the next 15 years, and that's at a 0% rate of return. At an 8% rate of return, you'll have closer to 9 times your salary in your account at the end of your 15-year career.

There are so many factors to consider when evaluating job opportunities, and you are wise to put the 401(k) match near the top of the list. My gut tells me more workers in their early 50s will start to do the same thing, especially those people whose account balances aren't anywhere near where they should be.

Peter Dunn is an author, speaker and radio host, and he has a free podcast: "Million Dollar Plan." Have a question for Pete the Planner? Email him at AskPete@petetheplanner.com.

The views and opinions expressed in this column are the author’s and do not necessarily reflect those of USA TODAY.

This article originally appeared on USA TODAY: Retirement, 401(k) plan details are important when changing jobs

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