A Great Offer That Many Unwisely Refuse

By Brooks Clark, CFP


Clark Financial Advisors

Reprinted from The Gadsden Times
March, 2007

What if you opened your newspaper this morning and discovered that the local bank had announced that they were offering a one-year certificate of deposit that would pay you 100 percent interest on your savings. The bank opens at 10 a.m. How long do you think the line might be to invest in this “100 percent return” certificate of deposit?

Such an instrument from your local bank is unlikely, but your employer likely has an even better offer—a 100 percent return on your money the very first day that you invest for retirement. Remarkably, this offer, contained within most employers’ retirement plans (401Ks are a common example), very often goes unaccepted, as many employees choose not to participate in the retirement plans offered by their employers. I find this choice not to participate in such a plan simply unbelievable.

401K plans and similar retirement plans allow you to defer a portion of your income into a savings plan for retirement, and you avoid both federal and state taxes on your contribution. Many employers then match your contribution, dollar for dollar, up to a set percent of your salary. Not only are you saving for retirement by putting “pre-tax dollars” into your account and enjoying an immediate tax savings of between 15 to 35 percent, but also the matching dollar you receive from your employer results in a 100 percent-plus return on your contribution the first day you invest. In other words, you get a tax savings from Uncle Sam and your state of, let’s say, 25 percent, and your employer kicks in 100 percent with a matching dollar. That’s a 125 percent return the first day you chose to direct a dollar into your retirement plan.

It is truly remarkable that so many employees say no to this offer. Recent figures, provided by Fidelity Investments, suggest that barely more than 50 percent of eligible employees elect to participate in their employers’ 401K plans. The reasons: they don’t want to reduce their paychecks; they need another big screen TV, a new car, new clothes, a larger house; or they just�Ķfill in the blank. I once heard a medical clinic manager spend 15 minutes trying to explain to a young employee the benefit of putting just $10 per pay period into her plan. She responded by saying that “her husband did not want her to bring any less money home.”

Listen, folks, this is about choices and taking control of your future. You may think that the amount you can save is just “too little to worry about,” but any amount is a start. If you are truly ready to face your later years dependant on a government program that was originally designed to provide only the barest of necessities, you have no one to blame but yourself. The government is sending a message by allowing companies to design retirement plans that allow you to receive incredible single-day returns in an effort to assist you and encourage you to save for the future. But there is a catch—you have to take the first step by choosing to participate. Isn’t it about time you took control of your financial future?

To see how just “a dollar a day” directed into your employer-sponsored retirement plan, with matching contributions, can grow phenomenally, visit our website at www.clarkfinancialadvisors.com and click on the bottom-of-the-page link, “$1 A Day In A 401K.”

Next month, we’ll discuss arming yourself with information to defend against an “investment salesman.”

Brooks Clark is a certified financial planner with Clark Financial Advisors in Birmingham, which serves clients throughout Northeast Alabama. Clark is originally from Anniston. His e-mail address is brooks@clarkfinancialadvisors.com.