If you’re encouraging all your employees to put as much as they can into their 401(k), I hate to break it to you, but you may be causing more harm than good.

If you run the numbers, the 401(k) option might not be the best place for many of your employees to put their discretionary income, especially if they don’t have an emergency fund, or they’re up to their eyeballs in high-interest debt.

For exactly this reason, it’s important to make sure you go beyond encouraging higher and higher 401(k) contributions (which only some employees can manage) and, instead, meet your entire workforce where it is, with more empathetic, targeted, holistic financial guidance.

So what does this look like?

Well, in an ideal world, you’d be able to pair up every one of your employees with a savvy and charming financial guru who could look at their unique financial situation, and give tailored recommendations on how they should be spending their free dollars–i.e. money left over after basic living expenses are covered. But I’m guessing you don’t have a budget for that.

The good news? For exactly zero money, you can still significantly improve the usefulness of your 401(k)-related content by highlighting some typical, less-than-perfect financial situations and giving advice accordingly. As a result, your employees can latch on to the situation closest to their own and feel more confident in their choices.

Here’s what this kind of targeted advice might look like, say, in an email you send to your workforce:

Putting money away for your retirement is important, but how important depends on the financial boat you’re in. Here are three common employee types–and some financial food for thought, for each.

Example #1: Joan, the Prepared.

Joan has a few thousand dollars saved for emergencies and no high-interest credit card debt. So, for Joan, it makes sense to fund her 401(k) up to the company match and beyond, as much as she can afford.

Why? Her short-term financial situation is secure, so she’s in a position to focus on her long-term goals. (For context, the average 401(k) contribution rate at Vanguard in 2016 was 6.2% of total salary; at Fidelity, the average was 8.4%. However, most advisors suggest putting away 15% of your paycheck if you can.)

Example #2: Dave, Who Has No Emergency Fund

Dave lives paycheck to paycheck and doesn’t yet have an emergency fund. For Dave, it would make more sense to set money aside for that before he puts money into your 401(k), even if his company offers a match.

Why? If Dave finds himself suddenly having to pay for something unexpected–e.g., having a broken transmission or a flooded basement–and doesn’t have cash saved up, his options for paying off this bill are to a) raid his existing 401(k) funds and pay a penalty, (b) take out a loan against his account, reducing his after-tax pay by paying back principle and interest, or (c) use a high-interest credit card. All of these options would result in him losing money beyond the cost of the surprise expense. Not great for Dave!

Example #3: Greg, Who’s Got a Safety Net, But Who’s Saddled With Lots of High-Interest Debt

Since Greg has an emergency fund in place, it makes sense for him to fund his 401(k) until his employer match is reached–he just can’t beat a 100% return on his money. However, since he has high-interest credit card debt, Greg probably shouldn’t contribute any more money to his 401(k) beyond the match until his debt is repaid.

Why? He would lose more money than he’d gain if still carrying that debt. Specifically, his 401(k)-related gains–7%-9% annually, on average–would most likely be less than the losses he would take on his credit card, let’s say, 13%-17%.

After you’ve educated your employees, make it easy for them to take action

You could add the examples above into your general 401(k) messaging and call it a day. But why stop there? If you’re truly invested in helping your employees not only plan for retirement, but also create savings and dig out of debt, take these three steps to boost their chances of actually getting there:

#1. Reiterate your 401(k) messaging whenever employees get a raise, bonus, or promotion

There’s no better time to talk about what to do with your ‘free dollars’ than when an employee has just landed more free dollars, courtesy of payroll.

#2. Share links to reputable personal finance blogs and podcasts

Here are just a few reputable resources to consider:


  • Get Rich Slowly. Great for personal finance beginners; reviews personal finance books and products.
  • The Simple Dollar. Especially useful for people trying to get out of debt; provides guidance on how to set up an emergency fund.
  • Investopedia. Features articles, tools and simulators for the novice investor.
  • Mr. Money Mustache. Provides practical advice on how to live frugally and achieve financial freedom; particularly popular with Millennials


Bonus tip: Don’t just send all these links in a one-time email. Remind your employees about these resources regularly by highlighting a single resource every month. The more visibility you give them, the more likely your employees will dig in.

#3. Highlight apps that put savings on autopilot

In the same way 401(k)s use automated deposits to make retirement savings easy for employees, mobile apps like Acorns, Robinhood, Stash, Digits and Tally use automation to help people build emergency savings funds, pay down credit card debt, and invest in smart, manageable, and automatic ways.

Making your employees aware of these tools doesn’t guarantee they’ll use them, of course. But it will show that you have their best interests in mind–which, when it comes to creating change, is half the battle.

(This article appeared in a different form in Plan Sponsor magazine in February 2018.)