When it comes to saving for retirement, about one-third of Americans that have access to an employer sponsored retirement plan are saving below the employer match offered – potentially leaving thousands of dollars on the table annually.¹ When an employer sponsored retirement plan has a matching component, there is only one requirement for the employee to receive this benefit: The employee has to actually contribute to his or her retirement as stated within the plan. Let’s assume XYZ Law Firm has a retirement plan wherein the business matches up to 5% of the employee’s gross compensation. Here’s how it works:

• If the employee does not contribute at all to his or her retirement, there is nothing for XYZ Law Firm to match; thus, the employer pays nothing.
• If the employee contributes 3% of his or her gross compensation, XYZ Law Firm also contributes 3% to the employee’s retirement.
• If the employee contributes 5% of his or her gross compensation, XYZ Law Firm also contributes 5% to the employee’s retirement.
• If the employee contributes 10% of his or her gross compensation, XYZ Law Firm also contributes 5% to the employee’s retirement. Under this quite generous plan, the business matches up to, and not above, the amount stated (in this case 5%).

Employer match long-term impact

While missing $50 or $100 per pay period may not sound like much, in the long run employees who don’t take advantage of their full company match are losing out on significant money. Here’s an example to show just how much using SmartAsset’s free 401(k) calculator.

Let’s say Beth is 30 years young and works at XYZ Law Firm, which offers an employee match at a dollar-for-dollar rate up to 5% of the employee’s gross compensation. Beth earns $50,000 per year before taxes and, for simplicity, assume for 35 years she never receives a raise. Assuming a 10% rate of return on her retirement investments, if Beth contributes 5% of her gross compensation to her 401(k) annually, she’ll have $1,474,187 in her account by the age 65. That’s including employer match on that 5% she contributes. This chart is how the $1,474,187 is broken up:

Let’s use the same hypothetical, except this time XYZ Law Firm does not offer a company match. Beth still earns $50,000 per year before taxes and she contributes 5% of her gross compensation to her 401(k) annually. What does she end up with at age 65? $737,093. Thus, by working for a Law Firm that did not have a company match, Beth cost herself $737,094 of retirement savings. Ouch. Here is how Beth’s $737,093 is broken up:

Bottom line

Retirement saving is essential to your financial picture. Even if you don’t have an employer match built into your plan, there is still see significant value to saving for your retirement. However, if you are fortunate enough to work for a business that has a 401(k) and a company match, failure to take advantage of the full employer match may leave a significant amount of savings on the table.

This illustration is hypothetical and for illustrative purposes only. It is not intended to represent the past or future performance or any specific investment. Philosophy of compounding does not guarantee profit or prevent loss. Investment return and principal value will fluctuate and when redeemed the investment may be worth more or less than their original cost. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

Securities offered through Concourse Financial Group Securities, Inc. (CFGS), Member FINRA/SIPC. Advisory services offered through Concourse Financial Group Advisors, a DBA for CFGS, a Registered Investment Advisor. Davis Wealth Management, LLC is independent of CFGS. Davis Wealth Management, LLC and Concourse Financial Group Securities do not provide legal, tax, or accounting advice.

_{The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Davis Wealth Management, LLC. © 2022 Davis Wealth Management, LLC.}

 ¹ How America Saves 2021 (vanguard.com)