Saving for retirement isn't easy, and if you're falling behind, you're not alone. A 2023 report from Vanguard found that the median 401(k) balance among Vanguard participants was just $27,376. Meanwhile, the average worker is expected to need around $1.8 million to retire comfortably, according to a survey from Charles Schwab.
However, many people are stretched thin financially and finding extra cash to save isn't always possible. The good news is that if you have access to a 401(k) plan through your employer, there's a simple hack that can instantly double your savings with next to no effort. Here's how.
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Matching contributions can supercharge your savings
If you have a 401(k), you might also have access to matching contributions from your employer. Not all plans offer this perk, but of those that do, the employer will generally match a worker's 401(k) contribution up to a certain percentage of their salary.
The employer match is essentially free money and can instantly double your savings without any extra effort on your part. If you're not taking full advantage of this perk, you could be leaving thousands of dollars on the table.
As of 2022, U.S. workers earned a median wage of around $55,000 per year, according to the Bureau of Labor Statistics. In addition, the average 401(k) match was 3.5% of an employee's salary -- or around $1,925 per year, in this case.
Let's say that in one scenario, you're contributing $1,000 per year to your 401(k) and earning a $1,000 annual match from your employer. In another scenario, say you're saving $1,925 per year and earning that full amount in matching contributions, too.
Assuming you're earning a modest rate of return of 8% per year -- though stock market returns are not guaranteed -- here's approximately how much those savings would add up to over time in both situations:
| Number of Years | $1,000 per year + $1,000 company match | $1,925 per year + $1,925 company match |
|---|---|---|
| 20 | $92,000 | $176,000 |
| 25 | $147,000 | $282,000 |
| 30 | $227,000 | $436,000 |
| 35 | $345,000 | $664,000 |
| 40 | $519,000 | $998,000 |
Data source: Author's calculations via investor.gov.
In other words, contributing that additional $925 per year (or around $77 per month) could amount to nearly half a million dollars more after 40 years once you factor in the employer match, and if your returns work out to 8% per year.
By not taking full advantage of these contributions, you could be missing out on a lot of money throughout your career.
What if you can't afford to save more?
Money is tight for millions of workers, and many people simply don't have hundreds of dollars per month to save. That's OK. Even if you can't max out your employer match, saving whatever you can afford (even if it's just a few dollars per week) still adds up.
When it comes to saving for retirement, time is your most valuable asset. The more years you have to let your money grow, the more you can potentially earn. Rather than putting off saving until you can contribute more, it's often better to invest whatever you can now while time is on your side.
This is especially true if you're earning matching 401(k) contributions. When your savings are doubled, even small amounts can go further than you might think.
Not everyone will have access to a company 401(k) match, but if you do, it's wise to take full advantage of it. While these contributions may not seem like much, they could potentially add up to hundreds of thousands of dollars in retirement savings.
