Is Contributing to a 401(k) Worth It on a $32,000 Salary? Here’s What I Discovered

In today’s financial world, there’s a clear lesson to learn in that you shouldn’t hesitate to invest money in retirement. There are no guarantees around income or market growth, but every cent counts, so if you can set up a 401(k), you absolutely should. 

One Redditor is wondering this very question but is concerned about what path to follow. With a salary of $32,000 annually, this individual posted in r/personalfinance to gather opinions about whether taking advantage of their employer’s 401(k) matching makes sense. 

I love that this is even a question on someone’s mind, regardless of salary, as the importance of setting aside money for retirement cannot be understated. 

Every Penny Counts

There is rarely near universal agreement in a Reddit comment section, but here we are, and in this particular instance, it’s a very good thing. Even with a $32,000 salary, there is no question that this employee should be taking advantage of their employer’s 401(k) matching. 

Setting aside the need to save for retirement, there is the idea that employer matching is essentially “free” money toward your retirement, regardless of what percentage they match up. 

It doesn’t matter if it’s $20 or $200 per paycheck, and there is every reason to believe that your money will do better sitting in a 401(k) account than being spent on any unnecessary extras in your life. 

One Redditor in this post tells the story of her husband, who earned $12 hourly in a warehouse position in 2004 and always took advantage of the 6% match. She says he’s now the machine shop manager, has $300,000 in his 401(k), and has 25 years until retirement, and he’s never regretted taking advantage of the matching.

This example and many others prove that the payoff can be big and more than worthwhile no matter where you start. What’s worse is that several commenters are in the same position, all expressing regret that they didn’t take advantage of the free match. 

Saver’s Credit

One final consideration here is that a few Redditors point out that the Redditor should try to put aside $3,712 into the 401(k). The result is the Saver’s tax credit enabling this Redditor to get 50% of what they contribute as a tax credit up to $2,000, which in this case would be $1,856. 

Invest or Emergency? 

The Redditor’s question about whether they should begin investing first or establish an emergency fund before turning to investments is frequently overlooked in the comments. This is a very challenging question with no easy answer, as everyone’s situation is different. 

This said, the reality is that it would be wise to set aside an emergency fund so you have it there just in case anything happens in this Redditor’s life. As soon as this emergency fund is filled to wherever you want it to be, say 6-12 months of bill coverage, they should start shifting toward investing. 

Rest assured that this is not an easy decision, and the Redditor is okay to be confused, as millions of people are also asking themselves this question. The hope is that it won’t take too long to build up an emergency fund so that investments can start soon, but having money set aside for emergencies should be a top priority before making any other long-term financial decisions.