A $122,000 mistake: Choosing salary over retirement benefits

Recently, my friend Jen was weighing two job offers. She and her husband had compared the salaries, the commute, the upward mobility and even the on-campus food choices. Jen had come to the conclusion that both offers were pretty much the same.

Actually, it was comical how similar the offers were. The health insurance coverages were the same. The vacation policies were the same. Even the life and disability insurance packages were exactly the same. If you didn’t know any better, you’d think the companies were colluding. That’s until you pulled back the curtain on the retirement plan.

“What are the different retirement plan matches?” I asked her via text. She had no idea.

“I assume they’re about the same,” she offered up.

Given that every other benefit was essentially the same, I wouldn’t have been surprised had the retirement plans been the same. But she didn’t mention the plans, so I assumed she hadn’t asked. She hadn’t.

But then she did.

A $122,000 difference

She instantly realized the plans weren’t even close to the same. Based on her new information, Jen was on the verge of unknowingly making at least a $122,000 mistake, and that's just over the next 15 years of her career.

One of her suitors had a 3% match, while the other suitor offered a 10% match. More specifically, if she were to defer 5% of her income into the first plan, her prospective employer would deposit an additional 3% of her income into the retirement plan, in the form of an employer match. The second prospective employer was offering to add 10% of her compensation to her retirement plan if she simply deferred 5% of her income into the plan.

Both of her salary offers were $50,000, but if you added in the retirement plan matches, one offer was $51,500, while the other offer was $55,000. Jen likely missed this idea during her comparison shopping because the $3,500 difference had absolutely no impact on her current lifestyle. Sadly, even at the age of 30, you must have one eye on your future finances. She only saw her salary.

“The job I’m leaving to take the new job, was my first job. I didn’t care about the 401(k) when I was 22, and it hadn’t even occurred to me that it should matter now,” she mustered

The 7 percentage point difference is worth about $122,000 over the next 15 years of her employment. Seeing as though Jen is only 30 years old, she could conceivably work at her new job for decades, which would drive the impact of her decisions into the hundreds of thousands of dollars range.

You can learn quite a bit about a company by examining its retirement plan. Some companies choose to aggressively contribute money to your retirement goals, while others set up more moderate deferrals. The average 401(k) employer match in America is just over 2.5%. But some companies don’t simply stop with 401(k) plans. Some employers’ retirement plans can include profit-sharing plans, stock-purchase plans and other financial benefits.

There are several factors that influence a company's retirement contribution strategy. Some companies with thin profit margins choose not to do much more than 1%, while some companies with giant profit margins choose not to do more than 1%. It’s funny like that.

Happiness may be overrated

The more competitive the industry, in terms of attracting and retaining talent, the more complex and comprehensive the retirement plan strategies are likely to be. This fact not only affects your decision to take a job, but it should influence your unwillingness to leave a job. Don’t be lured away from a wonderful retirement plan by a higher salary. If the retirement math doesn’t support you leaving, don’t leave.

Yes, happiness and all that other good stuff matter, but ignoring retirement match is a deadly sin.

Whether you’re considering joining a company or leaving a company, take the time to explore what the retirement plans have to offer. Ignoring what others will do for your financial future could cost you hundreds of thousands of dollars.

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


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