Money Fix: Lower Salary Vs. Bigger 401(k) Match

Climb the pay scale or employer 401(k) contribution?

It may be tempting for an employee to negotiate a higher 401(k) contribution with a lower salary, but the experts warn that there are downsides to that strategy. In a recent Fidelity Investments survey, 43 percent of those polled said that if offered a choice with a new employer, they would prefer to take a lower salary in return for a higher employer contribution to their 401(k). Is this a smart strategy?


"The impact of having a larger amount accumulated in the 401(k) could foster an increased pace of growth, which could potentially be the difference in retiring earlier or maintaining a comfortable lifestyle in retirement," says Eric Szczurowski, a certified financial planner with Kuttin-Metis Wealth Management in Melville. Say an employee earns $100,000 and has a 5 percent employer match, the $5,000 the company chips in should be considered part of the total compensation package. "If you were comparing this job to a job that has no 401(k) match and pays $2,500 more, I would recommend you take the job with the 401(k) match, because your total compensation is higher," explains Matthew Mandell, a certified financial planner with Mandell, White & Associates in Melville.


But that's not to say taking the higher match is a slam dunk. Can you really afford a lower salary? Another key question is, "If times get bad, will the employer reduce its contributions to the 401(k)?" asks Cal Brown, a certified financial planner with Savant Capital Management in McLean, Virginia. He's a skeptic. "Opt for the higher salary and build up an after-tax account. This way, you're not stuck with a lower salary and the risk of reduction in employer contributions to the 401(k)."

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