One of the most valuable benefits many employers offer is a retirement plan match. Yet, a surprising number of employees don’t take full advantage of this “free money.” If your employer matches contributions to your 401(k), 403(b), or similar plan, it’s essential to contribute enough to receive the full match. Let’s break down why this is so important and use a simple example to illustrate.
The Difference in Contributions: A Real-World Example
Let’s look at Jane and Alexa, two coworkers earning $100,000 annually:
| Details | Jane (Contributes 3%) | Alexa (Contributes 4%) |
| Annual Salary | $100,000 | $100,000 |
| Employee Contribution Rate | 3% | 4% |
| Employee Contribution | $3,000 | $4,000 |
| Employer Match Rate | 4% | 4% |
| Employer Contribution | $3,000 (matches Jane) | $4,000 (matches Alex) |
| Total Annual Contribution | $6,000 | $8,000 |
Jane contributes 3% of her salary ($3,000), but because the employer matches up to 4%, she leaves $1,000 of potential employer contributions on the table each year. Alternatively, Alexa contributes 4% and receives the full employer match, giving her an extra $2,000 annually in total contributions compared to Jane.
The Long-Term Impact
Let’s assume their investments grow at 7% annually over 20 years. The difference in total contributions has a dramatic effect:
| 20-Year Growth | Jane (3%) | Alexa (4%) |
| Annual Contribution | $6,000 | $8,000 |
| Total Contributions | $120,000 | $160,000 |
| Growth Over Time | $135,681 | $180,908 |
| Total Account Value | $255,681 | $340,908 |
Alexa ends up with over $85,000 more in her retirement account, simply by contributing an additional 1% of her salary to maximize the match.
Why Maxing the Match is Essential
For every dollar you contribute up to the match, your employer is essentially giving you another dollar. Skipping this is like turning down part of your salary. Contributions from both you and your employer grow tax-deferred, meaning compound growth works even harder for you. Even if you’re on a tight budget, increasing your contribution by 1% or 2% often feels manageable. That small change can lead to significant long-term results.
Take Action Today
Check your employer’s matching policy and make sure you’re contributing enough to take full advantage. Whether it’s 3%, 4%, or more, this simple step can have a powerful impact on your future financial security.
By making sure you get the full match, you’re not just saving for retirement—you’re doubling your efforts with your employer’s help!
