One key benefit of saving in a 401(k) plan is the potential for an employer match. The majority of companies that sponsor 401(k)s also match employee contributions to varying degrees, and as such, workers who put in enough of their own money stand to collect some free cash for retirement. But here's an even more compelling reason to fund a 401(k) and snag that match: Employers are contributing more to their workers' accounts than ever before.
The average employer contribution for a 401(k) is now 5.1% of employee pay, according to the Plan Sponsor Council of America. That's the highest figure the PSCA has on record. Given that the average American earns $46,641 a year, that translates into $2,379 annually in free savings for workers who contribute enough of their own earnings to snag their employer matches in full.
If you've been neglecting your 401(k), it pays to see what sort of match your company is offering and contribute enough to get that bonus cash. Of course, freeing up money for savings is easier said than done, so if you're not sure how you'll get your 401(k) funded, here are some tactics to employ.
1. Cut one major expense in your budget
You've probably been told that if you were to give up your beloved morning coffee, you'd have a nice chunk of cash lying around by the time retirement rolls around. The truth, however, is that forgoing that daily java probably won't be enough to help you capitalize on your company's 401(k) match if it's on the generous side. If you typically spend $3 a day, that's only about $1,100 a year in freed-up cash. And if you need to contribute $2,379 of your own income to snag your employer match, you'll clearly fall short.
A better bet? Cut one larger expense in your budget. It could be your rent payment, your pricey cable plan, or the car you like having around but technically don't need. These changes might easily reduce your monthly spending by $200 or more, thereby increasing your chances of getting the full match you're entitled to.
2. Save your bonus or raise
If you're getting a bonus or raise in 2019, you have a real opportunity to ramp up your 401(k) savings and score the match you're after. All you need to do is instruct your payroll department to direct that extra money to your 401(k). As such, it won't ever hit your bank account, and you won't be tempted to spend it.
3. Get a side hustle
Many folks who decide to take on a second gig do so because they're desperate for money, so getting a side job to free up cash for your 401(k) might seem unnecessary. But if you don't get a raise or bonus, and you're not willing to change your lifestyle, then a second gig might be the way to go. Of the millions of Americans who currently have a side hustle, 14% actually do so for the purpose of funding a retirement plan, so find a gig you think you'll enjoy (or at least won't mind) and use your earnings to keep up with your 401(k) contributions.
The fact that employer matches are higher than ever means that workers with 401(k)s have a solid opportunity to accumulate wealth in time for retirement. So don't let that free money go. Take steps to ramp up your own contributions so that you get the maximum 401(k) match you're entitled to.
The Motley Fool has a disclosure policy.