If you have access to a workplace 401(k), this account can help you save for retirement due to the generous tax breaks it offers. Your company may also provide you with matching contributions, which means they give you free money for retirement by matching part of what you invest. 

If your employer offers a match and you don't take advantage of it, you could miss out on hundreds of thousands of dollars in potential retirement income and leave yourself in much worse shape in your later years.

Here's why passing up your employer match could end up costing you so much. 

A broken white piggy bank with coins spilling out.

Image source: Getty Images.

Are you short-changing your future self by not contributing enough to earn your match?

According to the Bureau of Labor Statistics, the annual average wage in the United States was $64,021 as of the end of 2020. 

Many people who have a workplace 401(k) are eligible for an employer match of 50% or 100% of 401(k) contributions up to a specific percentage of their salary. According to Fidelity, the average employer match equals 4.6% of a worker's salary.

How much money are you missing out on?

That means if your employer offers matching funds that are around the average, you could potentially be eligible for up to 4.6% of $64,021 or $2,944.97 in matching contributions each year. But, if you don't contribute enough to your 401(k) to earn that full amount, you'd be passing up free money your company wants to give you to help you save. And that could cost you more than you think.

See, your employer's matching contribution can be invested and can earn returns that are then reinvested. This results in compound growth, and the matching funds you're provided each year could be worth a hefty amount by the time you reach retirement age.

Say, for example, that you were entitled to that $2,944.97 match for a full 30-year career and you invested the matching contributions in an index fund that earned an average 8% annual return (a reasonable return estimate based on past market performance). At the end of your 30-year career, the employer matching funds alone would be worth $333,623.59. And that's on top of any contributions that you made to your account to earn the matching funds.  

How to get your full 401(k) match

To ensure you get your full match, ask your employer what the rules are where you work. If you get a 100% match, for example, you would need to invest at least $2,994.97 to earn that same match if your earnings were average -- but if you get a 50% match, you'd need to set aside $5,989.94 to get the full amount from your company.

Now, your salary may be lower than average for some years of your career, so your match may not be that high every year. Or it could be higher in some years, so you'd miss out on even more money by forgoing your employer matching funds.

But the bottom line is, whatever the amount that you get from your employer, the contributions your company makes will grow exponentially over time and could be worth much more than you might imagine by retirement age. You can't afford to pass up this free money since it could make all the difference in helping you achieve financial security as a retiree. 

It may take some sacrifice, but remember, you also get a tax deduction, in addition to plenty of other benefits, for your contributions, and you can have them withdrawn directly from your paycheck, so investing enough to earn the full employer match may be easier than you think. Don't make the mistake of missing out if there's a way you can make it happen.