As vital as a good retirement plan is, a good chunk of American workers underestimate the power of their employer’s 401(k) matching program. This is a terrible — costly — mistake. While 75 percent of companies that offer 401(k)s also offer matching programs, roughly 20 percent of American workers don’t contribute enough to take full advantage of those programs.
Not contributing enough to a matching program is like leaving money on the table. As CNNMoney reports, a common 401(k) matching plan would match 50 percent of employee contributions, up to a certain percentage of total compensation. If you don’t contribute enough to trigger the match, you’ll be full of regret when it comes time to retire.
Let’s say that you earn $100,000 per year and your employer match is 50 percent, up to five percent of your salary. If you contribute $5,000 and your employer matches with 50 percent, you’re socking away $7,500 per year. Over 30 years your savings could balloon into roughly $708,000. That’s fantastic. If, however, you choose to only contribute the average automated amount to your 401(k) — three percent of your pay — you’re only putting $4,500 per year away. Over that same 30 year period, your account would only grow to about $425,000.
The difference is clear. Even if you’re just starting out in your career and scared of “taking” money away from your paycheck, maxing out your 401(k) contributions is the smartest move. Reach out to your plan administrator (you can generally do this online) and bump up the amount you’re kicking in with each paycheck. Start with just 1 to 2%, then when you’re used to that amount, bump it up again until you’re at the full match. You wouldn’t walk away from a free lump of cash, would you?