Why Leave Money on the Table—Make the Most of Your Employer’s 401(k) Match

Handouts for the Retirement Planning Club for ...
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Plan participants will begin to realize that the federal governement may not be able to support them in the retirement years. Sacrifices will be required to adequately prepare for retirement. It may include cutting expenses and / or increasing income.

According to a recent report,1 29.4 percent of 401(k) participants do not contribute enough to their 401(k) to receive their full employer match—with higher rates of foregone matches seen among younger workers age 20 to 29 (43 percent) and those automatically enrolled into an employer-sponsored defined contribution plan (41 percent). An earlier report showed that 40 percent of employees making less than $40,000 fall short of contributing the full extent of their employer’s match.2Millions of workers are leaving money—free money—on the table. 

FINRA is issuing this alert to educate investors about the substantial boost to their retirement savings that can come from taking full advantage of an employer’s matching contribution. As more and more companies reinstate matches that were cut or eliminated during the economic downturn, workers whose companies offer a match should make the most of it.

 

The Value of a Corporate Match

 

A 401(k) or similar employer-sponsored retirement plan can be a powerful resource for building a secure retirement—and an employer match can add a substantial amount to an employee’s nest egg. Let’s assume you are 30 years old, make $40,000 and contribute 3 percent of your salary ($1,200) to your 401(k). And, for the sake of this example, let’s also assume you continue to make the same salary and same contribution each year until you are 65. After 35 years, you will have contributed $42,000 to your 401(k).

 

Now let’s assume you get a match from your employer. One of the most common matches is a dollar-for-dollar match up to 3 percent of the employee’s salary. Taking full advantage of the match literally doubles your savings, even assuming no increase in the value of your investments: Instead of having set aside $42,000 by the time you retire, you will have set aside $84,000.

 

If you receive a 3 % match from your employer it is like receiving an extra 60 hours of pay per year. That’s a week and a half of extra pay per year tax deferred.

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