Each year, billions of dollars in free retirement funds go unclaimed. That sounds shocking, but the cause is really quite simple: Many of us aren’t taking advantage of matching funds offered by our employers.
How it works: Many employers offer workers the opportunity to save for retirement via a 401(k) plan. Some even offer “matching funds” for retirement, up to a certain amount, meaning you effectively double your contributions for the year by taking advantage of these matching funds! And yet many of us are unaware of this opportunity, or aren’t claiming the money.
Leaving this money on the table might cost you a lot more than you think. For example, let’s assume you’re contributing $1,200 per year toward your 401(k). After 35 years, you’ve saved $42,000. (For the sake of simplicity, we’re pretending that money doesn’t earn compounding interest over the years)
Now imagine that your company offers matching funds in the amount of $2,000 per year. You’re already saving $1,200 per year and earning the match for that amount. Essentially this doubles your savings to $84,000 in 35 years… But what if you had endeavored to save that extra $800 dollars each year, to take advantage of the full match amount? This would mean an additional $800 from you, annually, along with the match from your employer. So that $1,600 per year would have added another $56,000 to your total savings!
And, of course, keep in mind that this example does not include compounding interest on all that money. So it’s easy to see how you’re costing yourself an enormous opportunity, by not contributing the full match amount each year.
Yes, it’s best to set aside the maximum allowable amount in your 401(k) plan each year (this year, that would be $18,500). Not everyone can do that, but we do urge you to at least take advantage of your full employer match. Why turn down free money?
For more information on saving for retirement, give us a call. We can help you evaluate your savings plan, estimate a target retirement date, and continue to plan for your income needs throughout retirement.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
These are hypothetical examples and are not representative of any specific investment. Your results may vary.