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:
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:
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.
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Davis Wealth Management LLC d/b/a Davis Wealth Management. James Davis offers Securities 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 is independent from CFGS. Please be advised that presently James Davis holds Series 7 and 66 licenses in NC and SC. For residents of other states in which registration is not held, proper licenses and registrations must be obtained by representatives before proceeding further. No part of this communication should be construed as an offer to sell any security or provide investment advice or recommendation. Securities offered through CFGS will fluctuate in value and are subject to investment risks including possible loss of principal.
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