Saving for retirement isn't easy, especially when money is tight. With a recession potentially on the horizon, it's even more challenging to save for the future.
However, economic downturns can be one of the best opportunities to invest. Stock prices are significantly lower right now, which means that your money will go further than when the market is thriving. If you can swing it, continuing to invest now will pay off big time down the road.
There's also a simple strategy that can potentially boost your savings by hundreds of thousands of dollars with next to no effort: Earning employer-matching 401(k) contributions.
Double your savings without lifting a finger
If your employer offers matching contributions through your 401(k) plan, it's wise to take full advantage of them. This is essentially free money, and it can instantly double your savings.
Not all plans offer this perk, but in the ones that do, your employer will match your 401(k) contributions up to a certain percentage of your salary. While it may not sound like much in the short term, the employer match can add up substantially over time.
For example, the median earnings in the U.S. as of 2021 are around $1,000 per week, according to the Bureau of Labor Statistics, which is around $52,000 per year. The average 401(k) match is 3.5% of a worker's wages. That comes out to $1,820 per year in matching contributions, in this scenario.
Again, $1,820 per year may not sound like a lot. But let's say your investments are earning an average rate of return of 8% per year -- which is just below the market's historical average. After 30 years, that $1,820 per year would add up to nearly $207,000.
Keep in mind, too, that this is only considering your employer match. Your total savings, once you factor in your own 401(k) contributions, would be at least twice that amount.
How to earn even more
While a retirement fund worth hundreds of thousands of dollars will put you in a good position, it's possible to earn even more. To maximize your investments, you can either increase your contributions or give your money more time to grow.
If you're able to save more each month, that money can go a long way over time. But that's not always possible, depending on your financial situation. In that case, you can simply leave your money invested for longer.
For example, say you're investing a total of $3,640 per year -- $1,820 in your own contributions, plus the full employer match of the same amount. With an 8% average annual return, you'd have around $412,000 after 30 years.
However, say you continued investing for an additional five years. All other factors remaining the same, you'd have a total of around $627,000. After 40 years, you'd have a whopping $942,000 saved.
Also, because your employer match is a percentage of your salary, it will increase as your income increases. As you get further into your career and earn higher wages, you'll gradually earn more from your employer match, too.
Saving for retirement is one of the smartest financial moves you can make, and now is a fantastic opportunity to invest as much as possible. By taking full advantage of employer matching contributions, you can potentially boost your savings by hundreds of thousands of dollars.