Created: May 20, 2021
Modified: November 11, 2022

Episode 46: How Does A Retirement Plan At A Company Work?

Thank you for joining us for episode 46 of our Money Wisdom Question Series, where we answer common financial and retirement investment questions. Today’s question is, “How does a retirement plan at a company work?”

It can be very confusing. I had a son graduate from college a little while back. He got a job with a big insurance company and had access to a 401(k) with tremendous benefits of matching, and so on. Although, he didn’t quite understand how it worked. Here’s how I explained it. Forget about whether we put money in pretax or after-tax for just a moment. If you don’t know what that means, don’t worry about it. If you do, that’s not what we’re talking about today. We’re just talking about the basics of how a retirement plan works. If you work for a company, you can choose to take some of the money from your paycheck, and instead of putting it in your pocket, after paying taxes on it, you can take that money and put it into a retirement plan.

Company Match for Retirement Accounts

Let’s say I take $100 a week and put it into a retirement plan. Many times, my employer is going to give me additional money. Maybe they’ll give me another $50. So, it costs me $100 to save $150. Not a bad deal. Then, that money gets invested and it grows without me paying any taxes on it. When I get to retirement, I can take the money out. The key is that many times by saving in a retirement plan, the company or the governmental agency that you work for is going to put extra money in for you so it can be a very effective way to save for retirement.

The money is for retirement. If you take it out earlier than retirement, there could be some additional penalties.  You don’t have to pay taxes on all that growth, it’s a tremendous deal.

What you want to do is get into the habit of saving at least 10% of your income every paycheck, maybe even 15%. You won’t regret it later. By the way, if you’re getting close to retirement and you have money in a retirement plan, there need to be some strategies to take money out in the most tax-efficient way possible. But a retirement plan, money gets put into it. It grows tax-deferred. Many times, the company you work for puts in extra money. Everybody should be saving for their retirement. If you decide never to retire, at least you’ve got some money put aside.

Investing Involves Risk, Including Risk of Loss.

Thanks for joining me and I hope you found this information helpful!

P.S. If you enjoyed this topic and want to learn more, download your copy of, “The 3 A’s of Successful Saving“.

P.P.S. Feel free to submit questions here for a chance to have them answered!

  • Sandy and Thomas C.
    Sandy & Thomas C. are clients of Johnson Brunetti and received no compensation for their statement.

    “We always felt our financial needs were in very capable hands. Alex Angst is great to work with. Our advisor always made us feel he had our best interests at heart and explained things so we could understand them.”

  • Lisa D.
    Lisa D. is a client of Johnson Brunetti and received no compensation for her statement.

    “Working with Johnson Brunetti has had a positive impact on my life by providing me with the knowledge, confidence, and peace of mind to move forward with my retirement plans. The process of getting to this point, through their guidance, has been informative and pleasurable.”

  • Ken D.
    Ken D. is a client of Johnson Brunetti and received no compensation for his statement.

    “I view your company as one that puts my interests first. I think that is very uncommon and very refreshing. “

  • Jeanne P.
    Jeanne P. is a client of Johnson Brunetti and received no compensation for her statement.

    “Matt does an awesome job! So easy to understand and he listens to our concerns and addresses them! happy I chose your firm!”

  • Anonymous
    This testimonial was provided by a client of Johnson Brunetti and received no compensation for their statement.

    “I have been pleased with the help and service I have received from the company. I have met several team members on Eric’s team and have found all of them very well prepared to meet with me when reviewing my portfolio. I always feel that I am an important customer and appreciate that very much. I hope the firm continues to focus on the customer and maintains its great service. I think you do a great job for someone like me!!!! I’m happy I chose your firm!”

Johnson Brunetti
Welcome to Our New Website!
Everything was designed with you in mind, making our retirement planning resources more easily accessible to you.
Check out your new resource center, where everything can be organized by article type or topic
Are you ready to speak with a financial advisor?
Johnson Brunetti

Investment Advisory Services offered through JB Capital, LLC.
Insurance Products offered through JN Financial, LLC.
Atlanta • Boston • Hartford | Tel: 800-208-7233

JB Capital LLC is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. Information presented is for educational purposes only and is not intended as an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.

JB Capital's Form ADV | Disclaimer | Privacy Notice | Client Relationship Summary

*Information about our Affiliation with the UConn Huskies

Johnson Brunetti is a sponsor of WFSB Better Money, WCVB Better Money Boston, WSB-TV Better Money Atlanta, WTNH Money Wisdom, and WTIC Money Wisdom.