For Mark Roberts’ Use: If your employer offers a retirement plan such as a 401(k), congratulations. You’re one of the “lucky ones” in terms of retirement planning options. A 401(k) provides several significant benefits, both now and in the future, so hopefully you’re taking full advantage of it.
One of the lesser-known advantages comes in the form of matching funds from your employer. Some people don’t know about this benefit, because it isn’t often widely advertised by their company’s human resources department. Others know about the benefit, but are overlooking its importance. As it turns out, you could be missing out on thousands of dollars in free money.
Employers vary in their offerings, but one of the most common matching funds benefits is a dollar-for-dollar match up to 3 percent of your annual income. So, let’s say in your situation that 3 percent amounts to $3,000 dollars annually. This means that your employer will match every dollar you contribute to your 401(k) each year, up to $3,000.
Now let’s say that you’ve been contributing $2,000 to your retirement plan each year. You’re feeling pretty good about that, because after all, many Americans aren’t saving anything for retirement at all! You’re reaping a helpful tax benefit, too, since your contributions are made on a pre-tax basis and therefore lower your tax liability for the year.
But if you didn’t know about the matching funds offer from your employer, or you’re not taking advantage of it, you’re missing out on $2,000 of retirement savings per year (a thousand from you, and a thousand from your employer).
Over the course of a 35-year career, that’s $70,000 that you could have saved for retirement. And that’s before we factor in compounding interest on the account, which could help that money grow significantly!
Those matching funds seem like such a small thing on a daily, or even annual, basis. But as you can see, over time that money would make an enormous difference to your ability to retire securely. Inquiring about your company’s matching funds policy (and making the necessary adjustments to your withholding strategy) is one small step you could take right now, that could make a large difference later.
If you have any questions about 401(k) plans, or retirement planning in general, give us a call. We can help you evaluate your current strategy and make recommendations for improvements.