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34% of 401(k) Investors Are Making This Massive Savings Mistake

By Catherine Brock – Updated Jun 21, 2021 at 9:56AM

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There's an easy fix that could add six figures to your 401(k).

If you see an unclaimed $5 on the ground, you pick it up, right? Maybe you look around first to see who's paying attention, but you still grab the cash and claim it as your own.

And yet, according to a new Vanguard report, claiming free money is something many 401(k) investors are failing to do. Specifically, the report finds that 34% of 401(k) investors are not contributing enough to qualify for their full employer match.

Employer match describes the money your employer puts in your retirement account for free. To qualify for the full amount, you must make your own retirement contribution up to a certain percentage of your salary. Thinking back to the unclaimed money on the ground, this means you throw down your own $5 first. Then you can pick up your $5 and the unclaimed $5 and walk away with both in your pocket.

Person in suit holding phone and smiling.

Image source: Getty Images.

How employer matches work

Each employer defines its own matching formula, usually with two pieces of information:

  1. The cap. The cap is the maximum the employer will contribute. It can be a dollar amount, but it's normally a percentage of your salary. Vanguard reports that most matching formulas are capped at 3% to 6% of the employee's salary.
  2. The percentage the employer contributes relative to your own contributions. A 100% match means the employer contributes as much as you do. A 50% match means the employer deposits $0.50 into your account for every $1 you put in. Some plans have a tiered structure that defines two match rates. An example is 100% match up to one cap, followed by a 50% match up to a different cap.

The table below shows maximum match percentages -- and how to qualify for them -- under three popular matching formulas.

Match Formula

Maximum Match

Your Contribution to Get the Maximum Match

Total Employee and Matching Contributions

$0.50 on the dollar on the first 6% of pay




100% match on the first 3% of pay




100% match on the first 3% of pay and $0.50 on the dollar on the next 2% of pay




Table data source: Author calculations.

What your employer match is really worth

You might calculate 3% or 6% of your salary and be underwhelmed by the value of your matching contributions in a single year. But when you look at the value of your matching contributions over time, the results are far more impressive. The table below shows how your matching contributions grow when invested at market-average rate of 7% after inflation.


Value of 3% Contribution in 15 Years

Value of 6% Contribution in 15 Years

Value of 3% Contribution in 30 Years

Value of 6% Contribution in 30 Years































Table data source: Author calculations.

The first thing you might notice about the numbers is their size. In 30 years, a 3% match on a $45,000 salary grows to six figures. But there are also other interesting conclusions to take away from the data:

  • A 3% match rate can grow to 75% of your annual salary in 15 years. In 30 years, it can grow to two years and 10 months' worth of income.
  • A 6% match rate can grow to 150% of your annual salary in 15 years and five and a half times your salary in 30 years.
  • You can amass far more wealth when you have more time to invest. The difference between the 15-year and 30-year columns tells the story.
  • A total contribution of 6% may not be enough to fund a comfortable retirement. You could max out a 3% employer match with your own 3% contribution and still be short of what you need.

Pick up your free money

Employer matching contributions can add six figures to your retirement balance over time. Taking advantage of that perk is almost as easy as picking up loose bills off the ground.

Ask your 401(k) administrator to explain the matching formula. Then raise your contribution rate to whatever percentage is needed to get your full match -- or higher if you can afford it. Just like that, you're in the group of 66% of 401(k) savers who are doing it right.

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