Please ensure Javascript is enabled for purposes of website accessibility

Taking Advantage of This Key Opportunity Could Leave You $600,000 Richer in Retirement

By Maurie Backman - Feb 28, 2021 at 7:31AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Here's an easy yet effective way to give your retirement savings a massive boost.

Socking money away in a retirement plan requires discipline. After all, the money you contribute to that plan is money you won't have available to spend on other things, whether it's essential bills or leisure. But if you have a 401(k) through your employer, contributing to that plan could render you eligible for a company match. If you put in enough of your own money to snag that match, you could end up a lot wealthier once your time in the workforce comes to an end.

Don't give up that match

Many employers who offer 401(k) plans also match worker contributions to varying degrees. If yours has this type of program in place, it means you could be entitled to free money in your retirement plan that could help you grow serious wealth in time for retirement.

How much wealth are we talking about?

Imagine you earn $60,000 a year and your employer is willing to match contributions that equal up to 5% of your salary. This means that if you put $3,000 of your own money into your 401(k), your employer will contribute another $3,000. Over that time, that could add up to a lot of extra money.

Bills floating in the sky

Image source: Getty Images.

In fact, an extra $3,000 a year in employer matching dollars could leave you with almost $600,000 more in your 401(k), assuming you collect that match for 40 years and your 401(k) investments generate an average annual 7% return, which is a reasonable assumption with a stock-heavy strategy. To be clear, that's $600,000 in free money -- a combination of company matching dollars and gains.

Of course, this $600,000 sum is an arbitrary one based on a single example. It's also an imperfect example, as it assumes the same salary, contribution rate, and match over time (often, all of those figures will evolve as your career progresses). The point, however, is that if you manage to take advantage of your full employer match, you could end up with a serious load of extra cash in time for retirement. That additional money could spell the difference between getting to travel and live the lifestyle you want versus pinching pennies and worrying about keeping up with your bills.

If you can't manage to contribute enough of your salary to snag your full employer match right now (say, your bills are just too burdensome or you have high-interest debt you really need to pay off), do your best to contribute what you can. After all, a partial match is better than no match at all.

Secure your future

The money in your 401(k) will play a huge role in your retirement finances. After all, Social Security only pays the average senior today a little over $18,000 a year, and you'll probably need a lot more money than that to live comfortably. Capitalizing on your employer's 401(k) match is a great way to set yourself up for a stable retirement on somebody else's dime, and if you play your cards right, you could end up with hundreds of thousands of extra dollars by virtue of a match alone.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.