Just Say Yes to Your Employer’s 401(k) Match
Everyone is interested in “free money,” right? That is what an employer’s 401(k) match represents. Free money that will be deposited into your retirement account, growing tax deferred for years to come. By the power of compounding, this money can make a substantial difference in your retirement nest egg upon retirement.
If your employer offers a matching contribution, you should consider contributing up to the employer matching amount. When you receive a company match, it is like receiving that same percentage return on your account. For example, if it is a dollar-for-dollar match, you immediately get an amount equal to a 100% return on your employee contribution.
Consider the example below:
Mary is 35 years old and just started a new job earning $50,000 a year. She is considering contributing to her employer’s 401(k) plan. The employer offers a 100% match of the first 3% she contributes to the plan. Therefore, if Mary contributes 3%, or $1,500, her employer will contribute an additional $1,500. Assuming a 3% annual pay increase and a 6% return on her investment, the chart below illustrates how contributing up to the employer match doubles her retirement savings. Additionally, Mary could wisely decide to increase her contributions over time, improving her totals.
If your employer offers a matching contribution, you should consider contributing up to the employer matching amount.
Contact your Wealth Advisor for more details.
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