My friend is the 1%, but not the 1% you’re thinking of.

I’m on a business trip right now with about 50 of my colleagues. Since I typically work out in the field (by myself for the most part), I don’t really know these people. I mean, I talk with them on the phone every once in a while, I see them at occasional meetings, but for the most part I don’t know them. Many, not even their names.

I do, however, have one coworker I’m really close with. We worked together in San Diego, found out we both were involved in Young Life, and he transferred to the Pacific Northwest two weeks after I did (albeit he transferred to Portland… which if you didn’t know is like the Junior Varsity version of Seattle). We’ve been spending most of our free time together, and since he knows I have this personal finance blog, a good chunk of our conversations are about money.

I discovered something very interesting last night. Even though my friend and I make the exact same salary – weird part about working for the fed is you know pretty much how much everyone makes – he happens to be part of the 1%.

No, not the 1% you’re thinking. 

I’ve always given him a hard time about saving for retirement. The government fully matches up to 5% of an employee’s gross salary in the Thrift Savings Plan (our version of a 401k). I learned last night, my buddy is only contributing 4% to his TSP.


I about ripped my hair out when he said it. I stopped him and was like “What the heck man? Four percent? What is keeping you from upping your contributions one more percent and getting the FULL match?”

He didn’t know what to say. While he was thinking, I started punching numbers in to my calculator watch (yes I really do wear a calculator watch). I interrupted his thought process and told him that increasing his contributions from 4% to 5% would cost him roughly $25 per period.

Now if my friend was scraping by, adding the 1% to receive a full match could be difficult. He’s not, and he knows it. He actually started laughing when he thought about just how silly NOT receiving the full TSP match is. He has LITERALLY been passing up free money for the last four years.

Needless to say, I got him to pinky promise me he would up his contributions to 5% when he got home. What’s that popular saying? Every time someone contributes to their 401k an angel gets their wings?  Yeah…. that sounds right.

I rarely tell people what they should do. If you like car loans, get a car loan. If you want to buy a house that stretches your budget thin because it’s “an investment”, be my guest. I wont stop you.

But hear this: If you aren’t taking advantage of a 401k type match at your work place, you are probably failing at personal finance (this is obviously directed to people whose company offers such a benefit, which I realize your company may not). You literally can not beat a 100% guaranteed return on your investment.

No. Seriously. You can’t.

You think you should pay off your student loan or credit card bills before taking advantage of your companies match, don’t you? You need to think again (seriously click that link… I explain why investing in a 401K is a higher priority over paying down HIGH interest debt). 

Fortunately, last night I was able to nudge my friend in the right direction. But it makes me wonder, how many of you ARE NOT taking full advantage of a company offered match (be honest, no judging here)? What’s keeping you from doing it? Can someone tell me why the majority of people DON’T take part in such programs?

17 thoughts on “My friend is the 1%, but not the 1% you’re thinking of.”

  1. “Can someone tell me why the majority of people DON’T take part in such programs?”

    There is a sense that retirement is way in the future, that retirement will take care of itself, that present expenses have greater priority. Mike Piper brought up a similar topic just yesterday at, and you might find his opening post and the resulting comments (in which I also took part) to be of interest. (For the record, I contribute enough to our 401k to get the full employer match, such as it is.)

  2. My company matches 100% for the first 3% then 50% for the next 2%. Guess how much I contribute?
    Yup you guessed it 5%.

  3. They don’t take part because they don’t understand. Or, to go a bit further than that, they don’t want to think about it. Like Larry said, retirement is some time period that is so far in the future away from this moment that they just don’t even consider planning for it.

  4. My company offers 8% matching and I contribute 10%. I just assumed virtually everyone contributed at least 8% to get their full matching. I love that I am basically being forced to save a good chunk of my paycheck towards retirement. I am very optimistic that I will meet my goal of saving 1 years salary by the time I am 30.

  5. An interesting response to why people don’t contribute to their company match is explored in the book Nudge by Sunstein and Thaler (among many other things). Mostly, we just do whatever the default is – so if you have to opt in or fill out a form to contribute up to the company match, people won’t do it. If the default setting is that the company match amount is taken out of people’s paycheck and they would have to fill out a form to change this, most people will do it. I know that people should be more interested in their retirement than this, but that seems to be how it works.

  6. What beats 100% guaranteed return? My company provides an opportunity to get an infinite return (division by zero) on the 401(k).

    We have three contributions to our 401(k) plan: Employee, Employer Match, and an Employer Non-elective. The employer non-elective is a percentage of annual salary based on age that is always contributed regardless of how much the employee puts in. Below age 30 it is 4% and increases by 1% every decade of age. Therefore it is possible to not contribute and receive a 4% match, hence an infinite return of 4% times salary divided by zero.

    In addition the company matches 100% of the first 3% of salary contributed by the employee and 50% of the next 2% employee contribution for a maximum match of 4% when 5% in contributed. Even though it does reduce my returns, I contribute the full 5% to get an effective company match of 9% (4% match plus 5% non-elective). My return is an immediate 225% which will climb as I age. If for some reason my contribution was only 1%, I would get a 600% immediate return, but my 401(k) balance would be lower and grow slower than with the 5% contribution.

    I guess my point is that the return by match is good, but there are some ways to manipulate the numbers to make a weaker position (1% contribution) seem better than a stronger position (5% contribution)

  7. My company doesn’t match but we get profit sharing (about 6%) that goes into an account that we have no control over. I contribute 15% to my 401K but I should probably be maxing our a Roth IRA instead. It’s just so much easier to never see the money in the first place than have to budget a $400/month contribution. Instead I only put $100 in my Roth.

  8. I don’t have a choice about contributing. 5% of my paycheck is automaticaly funneled to retirement & co adds another 7.8%, there’s no electing in or out of it. They both go into a fixed 5% guaranteed return account (don’t have a choice about that either). I could put in more with a deferred contribution account, but the co doesn’t match anything else.

  9. I work for another governemnt! The statedoes not match anything although I get a pension as a teacher. I max out my 403B, IRA and Roth IRA. I may even add a 757 plan if I earn a little more. Tax deferred investments are what we shoulkd want.

  10. At my last job (for a large public university) they matched the first 5% contribution at 200%. Yes, 200%. So I put in 5 and they put in 10%. It was amazing.

  11. well, if they’re anything like my husband, they may just be fiscal-phobes. He can’t even manage to tell me when it’s open enrollment time at his job so I can re-evaluate or change our coverages (DOUBLE-insured for yet another year, ARGH!), let alone actually figure out how much money he would be losing by not contributing up to a full employer match. Thankfully (sort of), he’s been working for public universities most of his adult life…so while the pay has been lower than private, at least he doesn’t have to actually think about employer matching (he only has to worry about whether he will actually get his pension).

  12. My company matches 25 cents for every dollar we put in up to 6%, We also have profit sharing that goes into the account every March, regardless of whether we contribute or not. Roughly 9 months ago I lowered my contributions from 6% to 0, My personal reasoning goes as follows: for about 4 years now my 401k balance has hovered within a $500 up or down range of constant. That includes my contributions, the company match, dividends paid ever year, and profit sharing every year. No growth whatsoever, for 4 years. My wife and I purchased our first home this year and after watching my 401k balance not move at all for that span of time I decided the money would be better spent paying down extra on the house. If anything ever changes for the stock market or my balance I might look back into it, but for now it seems just a waste of resources. I’m missing out on about $500 a year in company match, but I’m knocking far more than that off the interest on my mortgage.

  13. I love my employer savings plan. This is a great post, I am going to link to it on Dinks Finance. I hope you convinced your friend to change his mind.

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