Readers share their ideas on 401(k) strategies

From time to time, topics I cover in this column trigger reader letters. Last week’s column on taxes and my closing mention of 401(k)s did just that. Next week, we’ll tackle your comments and questions on taxes. (Don’t hesitate to send in more tax questions to readers@juliejason.com.)

This week, I’ll share three letters from people who were no longer participating in their 401(k)s and thus regretted not being able to compete for the 401(k) Champion Award (www.juliejason.com/ award).

From “HR guy”

“I am a huge fan of the 401(k), and I wanted to submit some of my best pitches that I use when talking to an employee. For those who have never done a 401(k): A 401(k) is about the only way we can hide money from the government. And it’s LEGAL! If money is tight, start with 1 percent and see if that hurts. If you can still pay your bills, raise it to 2 percent. If it still doesn’t hurt, raise it to 3 percent and so forth until it hurts, then back it off a percent or 2.

“For new hires: We have a 401(k) with a company match. The CEO has enough BMWs and wants you to have their money. It’s free. Take it! Put in enough to maximize the company match and then put in more if you can afford it.

“I gave [a young employee] the above pitches, and he went for like 3 or 4 percent. A year later, he comes over to show me his statement and he’s all jazzed because he had like $11,000 in there. I said, ‘Cool, did it hurt?’ He said, ‘No,’ so I said, ‘Then raise it up a percent or 2.’ I’ll never forget it. He was so excited. If these marketing pitches help ... persuade just one person to even start a 401(k), then my work here is done.”

From “Persuader of Doubters”

“I did my best to persuade my staff to contribute to a 401(k). The most stubborn person I managed in the mid-1990s was one of those people who didn’t like to think about money — I guess it seemed grubby and petty somehow. She was in her 50s and single, and like so many people who don’t like to think about money, it meant she had not saved up that much of it.

“Anyway, I kept working on her, and I found that the argument which finally convinced her was this: Showing her how much money could end up in her 401(k) each month, her contribution plus the company’s match, and how little difference it actually made to her paycheck, given that if she did not put the money in, she would not see that contribution amount in her paycheck. No, she would see much less due to all the taxes.

“People feel that if they put $500 in a 401(k), they miss out on that $500. But that is not true, because you would never see that $500 in your paycheck. So giving them a rough calculation of what they actually would give up in their paycheck, considering all taxes, etc., and comparing that to what ends up in their 401(k), including matching, and you are showing them ‘free’ money! It’s a great deal.

“I stayed friends with that employee, and now that she is retired and in her 70s, she regularly thanks me for talking her into contributing to that 401(k). It is a good-sized chunk of her retirement money. She certainly is much better off now than she would have been.”

From “401(k) retiree”:

“If you can manage it, contribute 10-25 percent per year. Contribute to a Roth outside your plan as well. There has become a more regular phenomena called a 401(k) millionaire! I knew two of this type even a long time ago, a forklift driver and an electrical shop electrician.

401(k) Champion Award

I extend my congratulations to the winners of the contest (The 401(k) Champion Award), whoever they may be. They are, indeed, very fortunate if they really do have a good-to-excellent 401(k) plan, which is a lot better than most of the rest can say.”

As to the 401(k) Champion Award mentioned by the reader, there is still time to nominate yourself or some-one you know. The deadline is Feb. 15 (www.juliejason.com/ award). Three independent judges will choose three winners who will be announced in April.