One popular way to prepare financially for retirement is with a 401(k) plan — a type of retirement savings plan where you and your employer can contribute. The employer match can lead to significantly more money when it comes time to retire.
“When you don’t contribute enough to get your full 401(k) match, you’re basically turning down free money, and that missed opportunity compounds in a big way over time,” said Taylor Kovar, certified financial planner (CFP) and CEO of 11 Financial.
GOBankingRates unpacks the vast difference between getting your full employer match and not getting the full match. Also discover the one thing every American should do with their 401(k) account.
A Look at the Numbers
Here’s a look at some examples of the monetary difference between getting your full employer match and not. The following scenarios are based on starting with a $1,000 balance and seeing a 7% rate of return. You can see more examples by using an online tool such as the 401(k) Calculator from AARP.
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$60,000 Salary
Employer match: 100% on 3% of salary
- Value at age 55 without employer match: $198,771.07
- Value at age 55 with employer match: $389,397.02
- Value at age 64 without employer match: $387,801.93
- Value at age 64 with employer match: $760,692.40
Employer Match: 100% on 1% of salary
- Value at age 55 without employer match: $71,687.10
- Value at age 55 with employer match: $135,229.08
- Value at age 64 without employer match: $139,250.28
- Value at age 64 with employer match: $263,526.10
Employer Match: 0% on 3% of salary
- Value at age 55 without employer match: $198,771.07
- Value at age 64 without employer match: $387,801.93
$80,000 Salary
Employer match: 100% on 3% of salary
- Value at age 55 without employer match: $262,313.05
- Value at age 55 with employer match: $516,480.99
- Value at age 64 without employer match: $512,077.75
- Value at age 64 with employer match: $1,009,181.04
Employer Match: 100% on 1% of salary
- Value at age 55 without employer match: $92,872.00
- Value at age 55 with employer match: $177,598.88
- Value at age 64 without employer match: $180.683.84
- Value at age 64 with employer match: $346,393.22
Employer Match: 0% on 3% of salary
- Value at age 55 without employer match: $262,313.05
- Value at age 64 without employer match: $512,077.75
Kevin Estes, certified financial planner (CFP) and founder of Scaled Finance, noted employees should consider the power of compound interest and employer matching. They can greatly impact the amount of money when it’s time to retire.
Brandon Gregg, CFP and advisor with BBK Wealth Management, said to get the most out of your retirement plan, make sure to review your 401(k) investments at least once or twice a year.
Other Options To Consider
If you decide to contribute maybe 1% or 2%, instead of 3%, Estes said other options to use your money include paying down high-interest debt, lowering insurance costs through higher deductibles, participating in an employee stock purchase plan, or investing through a regular brokerage account.
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This article originally appeared on GOBankingRates.com: 401(k) Reality: The Difference Between Getting Your Full Employer Match and Not
