Why You Should Prioritize Getting Your Employer 401(k) Match
One of the easiest and most impactful steps to saving for retirement is ensuring you take full advantage of your employer 401(k) match. This step is so important that it comes before tackling high-interest debt.
In this post, we’ll explore why securing your employer match is critical for your financial future and how it could provide a return that’s hard to beat.
The Importance of Getting Your Employer Match in Your 401(k)
Employers often offer a matching contribution to your 401(k) retirement plan—and taking advantage of this benefit could provide you with a return far greater than paying off high-interest debt.
For instance, while high-interest credit card debt can have interest rates of 20% or more, an employer match on your retirement contributions can yield returns of 50%, 100%, or even more—effectively offering you free money to grow your retirement savings.
Here’s an example to put it in perspective:
- Employer Match Example: If your employer matches 100% of your 401(k) contributions up to $5,000, for every dollar you contribute, your employer will match it. This is an immediate 100% return on your investment—hard to match with any other investment, especially if you’re paying down high-interest debt.
What If You Don’t Have an Employer Match?
If your employer doesn’t offer a retirement plan with a match or if you’re self-employed, don’t panic! This just means you should move on to the next step. You don’t need to find a new job just to secure a match; simply focus on other savings and investment opportunities.
What Could You Be Missing Out on by Not Getting Your Employer Match?
Failing to take advantage of your employer’s 401(k) match means leaving significant money on the table. Let’s look at what you might be missing out on:
- Missed Match Example:
If your employer offers a 50% match and you don’t contribute enough to get the full match, you’re missing out on that 50% return every year. For example, if your salary is $60,000 and you contribute 6% ($3,600), your employer will contribute an additional $1,800. Over time, that’s free money that can grow significantly through compounding.
Let’s say you miss out on that $1,800 match every year. If you were to contribute enough to get the full match, that missed $1,800 could grow into $310,170 by the time you’re 65, assuming an 8% annual return.
Don’t miss out on this opportunity! You can plug in your own numbers using my Investment Calculator to see how much you could be leaving on the table.
Missing out on the match could cost you hundreds of thousands of dollars in the long run, depending on how long you stay with your employer and how early you start contributing.
Are Employee Stock Purchase Plans (ESPPs) Part of Getting Your Employer Match?
Yes, if your employer offers an Employee Stock Purchase Plan (ESPP), taking advantage of the discount offered on company stock counts as part of securing your employer match. However, before diving into this, make sure that you’re not prioritizing ESPP over high-interest debt. Pay off high-interest credit cards and loans first, as the rate on your debt could be higher than the discount you receive through an ESPP.
Is Your Employer Match Guaranteed?
While your own 401(k) contributions are always yours, the employer match may not be guaranteed if you leave the company before you’re fully vested. Many employer-sponsored retirement plans have a vesting schedule, which means you might lose some or all of the employer match if you leave the company too soon.
For example, if your employer’s vesting period is 3 years and you leave after 2 years, you may only keep a portion of the employer match—so it’s essential to understand the details of your company’s retirement plan.
Conclusion
Getting your employer match is one of the easiest and most impactful ways to build your wealth over time. It’s essentially free money that can significantly boost your retirement savings—especially when you factor in the power of compounding. If you’re not already taking full advantage of your employer’s match, it’s time to make that a priority in your financial strategy. Remember, even small contributions can make a big difference in the long run. Don’t leave money on the table—start contributing today and let that match work for you.
