Every year, millions of Americans leave money on the table by not taking full advantage of their employer’s 401(k) match.
This “free money” is part of your compensation, yet a surprising number of employees fail to claim it. The result? Billions of dollars in lost retirement savings and a missed opportunity to build a more secure financial future.
How Much Are Americans Losing?
A 2015 study by Financial Engines estimated that U.S. employees leave about $24 billion in unclaimed 401(k) matches each year. This works out to an average of $1,336 per employee annually—money that could grow significantly over time thanks to compounding interest.
For example, missing out on $1,336 per year for 20 years could result in losing more than $42,000 in retirement savings, assuming a modest annual return of 6%. For many, that could mean working longer or retiring with less than they need.
Unfortunately, this trend hasn’t improved much: In 2021, one-third of American workers still didn’t contribute enough to receive their full employer match.
Who’s Most Affected?
Certain groups are more likely to miss out on their employer’s 401(k) match:
- Low-income workers: Employees earning less than $40,000 per year are far more likely to miss out than those earning more than $100,000. More than 40% of low-income workers fail to claim the full match.
- Younger workers: Nearly 30% of employees under 30 don’t maximize their match, compared to just 16% of workers over 60.
Additionally, many employees lose matching contributions when they leave their jobs before fully “vesting.” Vesting refers to the time you must stay with a company to fully own the matched funds. About 30% of employees leave their jobs before they are fully vested, losing an average of $26,000 in retirement savings.
Why Do People Miss Out?
There are several reasons people don’t take full advantage of their employer’s match:
- Lack of awareness: Some employees don’t fully understand how their employer’s matching program works.
- Financial constraints: Others feel they can’t afford to contribute enough to get the full match.
- Procrastination: Many assume they’ll “get to it later,” only to let years pass without optimizing their contributions.
The Power of Compounding
Let’s put this into perspective. If your employer offers a 100% match on contributions up to 5% of your salary and you earn $50,000 a year, contributing 5% ($2,500) means your employer also contributes $2,500. Over time, that match can grow exponentially.
For example, if you’re 30 years old and invest $2,500 per year for 35 years at a 7% return, your employer’s match alone could grow to over $370,000 by the time you retire. That’s the power of compounding, and it’s money you don’t want to miss out on.
How to Make Sure You Get the Full Match
Taking advantage of your employer’s 401(k) match is easier than you think:
- Know your plan: Read up on your employer’s 401(k) matching policy. How much do you need to contribute to get the full match? What is the vesting schedule?
- Contribute enough: At a minimum, contribute the percentage of your salary needed to maximize the match. For many, that’s typically between 3% and 6%.
- Automate your savings: If your employer offers automatic contribution escalation, enroll in it. This feature gradually increases your contribution rate over time.
- Review during job changes: Before switching jobs, understand your current employer’s vesting schedule to avoid forfeiting unvested funds. Also, enroll in your new employer’s plan right away.
How Employers Can Help
Employers play a critical role in ensuring employees take full advantage of 401(k) matches. Many companies are implementing strategies like:
- Automatic enrollment: Signing employees up for 401(k) plans automatically.
- Automatic escalation: Increasing contributions over time unless employees opt out.
- Financial education programs: Teaching employees the benefits of maximizing retirement savings.
Don’t Leave Money on the Table—Take Action Today!
Maximizing your 401(k) match is one of the easiest ways to build wealth for retirement. Yet, too many people miss out because they’re unsure where to start or feel overwhelmed by financial planning.
That’s where Gertsema Wealth Advisors can help. Our team specializes in guiding individuals and families toward financial security by helping them make informed decisions about their retirement savings.
Contact us today for a complimentary consultation and let us show you how to take full advantage of your 401(k), focus on investing wisely, and building confidence in your financial future.
Resources
- MarketWatch, This 401(k) bait and switch costs the average American worker $26,000, July 25, 2024
- Reuters, Are 401(k) matching contributions all they are cracked up to be?, August 5, 2024
- The Wall Street Journal, Changing Jobs Can Put a $300,000 Dent in Retirement Savings, October 7, 2024
