There are some smart moves you can make to put yourself in a position to have a financially secure retirement. Opening an IRA is one example, and maintaining an age-appropriate asset allocation in your investment portfolio is another. Outside of investing, moves like paying your home off before retirement, or getting rid of other debts, can go a long way toward financial security.
However, one extremely valuable move involves employer-sponsored retirement plans like 401(k)s. In many cases, employers will match your contributions up to a certain percentage of your compensation. But far too many people don’t take advantage. One wide-scale analysis found that one-fourth of retirement plan participants miss out on the full company match simply because they don’t contribute enough.
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Why your 401(k) match should be a big priority
Consider this simplified example. Let’s say that you earn $75,000 per year, and your employer is willing to match all of your contributions, dollar-for-dollar, up to 6% of your salary.
This means that if you take full advantage and contribute 6% of your salary, or $4,500, you will see double that amount, or $9,000 deposited into your account. Assuming this contribution rate for 35 years, you’d end up with a $1.7 million nest egg, compared with about $850,000 without the match. While you probably won’t earn the exact same salary every year, you get the idea — the employer match can make a big difference when it comes to your financial comfort in retirement.
On the other hand, let’s say that you only decide to contribute 4% to your 401(k) to make your paychecks higher. This would add a total of $1,500 back into your paychecks (and to your taxable income) but would result in $3,000 less flowing into your 401(k). Not only that, but your retirement nest egg would be about a half-million dollars less in 35 years, compared to if you had taken full advantage.
