The "Slap in the Face" Award: Flying Blind

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club

This week, a well-deserved cheek smacker goes to the employees of Boeing (NYSE: BA), the aircraft manufacturer. This one is so stupid it made me ill.

The employees of Boeing left $98 million on the table last year, and it all went into the pockets of the shareholders. All of it.

In fact, over the past 10 years almost a billion dollars earmarked for the employees went to the shareholders.

And the employees did this to themselves by not meeting just the minimum contribution of 8% of their pretax income to their 401(k). Not the max, the minimum of just 8%.

What hurts even more, Boeing matches up to 75% of that 8% - 75%!

That is a guaranteed 75% return on your money in one year with zero risk!

Are you guys impaired? Seventy-five percent of an 8% contribution is huge! I’d kill for that kind of money. That’s about 14% of their income, plus the tax benefit.

But as bad as a $98 million loss sounds, and it is a loss, if you apply just the minimum long-term return of the stock market to how much money these employees are leaving on the table, it adds up to about $5 billion over 20 years.

One-third of the employees who do not contribute anything to the 401(k) are essentially giving away a 6% raise, every year.

Australia has a mandatory contribution to its national retirement system, and I am at the point where I think we need one, too. Giving away a guaranteed 75% return on a portion of your money and a 6% raise every year is insane.

A recent Harris poll reported a full one-third of U.S. citizens contribute zero to their IRAs and 410(k)s. The median amount folks between the ages of 25 and 75 have in their retirement savings is $20,000. The median amount being saved by the other two-thirds is $120 a month.

Do the math. That’s a one-way ticket to the poverty level in retirement.

These same folks will carry a huge car or truck payment but won’t fund their retirement? Sorry, to turn down the kind of money the Boeing folks are leaving on the table is a sin.

And please don’t write in and tell me you are funding your retirement with your Social Security deduction each payday. Most folks pay in less than three years of the benefits they will receive when they retire.

Three years. Add it up.

Back in my broker days I did presentations to groups about how, if you fund your IRAs or 401(k)s, the tax benefit alone ends up funding most of your retirement. When you add up the benefit of lowering your overall tax bill every year and the benefit of growing your money tax-deferred, it really adds up.

So, to all you folks out in Seattle and the other Boeing locations: Wake up!  Where else are you going to get a 75% return on 8% of your income and get a tax break to boot?

We are truly a nation of money morons.

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