Big mistake! 1 in 3 people mess up this 401(k) basic
Remember how hard it was to find a job with benefits like a 401(k)? Followed by the agony of setting aside a portion of your paycheck when you’d rather have it now? Now, there’s something else you need to do with that 401(k): contribute enough to get the employer match. If you do, you’ll avoid a mistake that one in three workers makes. And the additional sacrifice is fairly minimal but can yield literally thousands of dollars each year towards your retirement. No, you won’t see that money in next week’s direct deposit, but your future self will thank you. Give it a try — here’s how.
The big mistake some workers make
Unless you’re like the third of workers who don’t even know if their company offers a 401(k), you probably remember that it’s a retirement savings vehicle. You contribute now and the savings are available to you upon retirement. If you have an employer match, your company kicks in a certain amount, too. Most company benefit policies require the employee to contribute a certain amount themselves and here’s where you might be missing out on free money.
The Vanguard “How America Saves 2019” report found that almost one in three employees who had access to employer matching funds didn’t contribute enough to get them. In other words, these employees left substantial amounts of retirement money on the table. The study also found that employees who got the option to enroll in 401(k)s, instead of having their employer sign them up, were more likely to opt for 401(k) withholding high enough to get the matching funds. Even if you don’t currently contribute at the amount that qualifies you for an employer match, you can fix it. You may have to wait for next year’s enrollment period, but you should immediately look into how you can manually change your 401(k) contribution to bring you up to speed. Experts recommend saving about 10 percent of your income for retirement. The good news: If your company matches your 401(k), that money is considered as part of the 10 percent that will assure a stable financial future.
Work where they match your 401(k)
Of course, to get this free money, you have to work at a place that makes healthy matching contributions to a 401(k). The average employer matches 4.7 percent of employee 401(k) contributions, according to Fidelity, and some top employers far exceed that amount.
If you’re job searching, be sure to inquire about the 401(k) match during the interview process. And note that a company that offers matching funds would literally be paying you thousands more over the course of your employment. So do the math if you’re comparing salaries between two potential employers and only one offers 401(k) matching. You’ll easily see how those 401(k) extras increase the compensation package. You may even be able to use this as a negotiating point with the competing job offer. It may be tempting to go with the workplace that has a latte machine in the breakroom, but the one that provides an extra portion of deferred salary each year is the one that cares about your future.
And don’t kid yourself that you don’t need to sock away for retirement. GOBankingRates recently found that 42 percent of American workers have less than $10,000 saved for the future. Of course, if you’re a Millennial, you may not even have access to a company that offers a 401(k), much less matching funds. Pew Charitable Trusts data indicated 41 percent of Millennials don’t have access to an employer-sponsored retirement fund, compared to 30 percent of Boomers. So if you do have the opportunity, use it!