Tax-advantaged 401(k) plans have provided a means for millions of retirement savers to build a nest egg. A 2013 survey by Aon Hewitt found that 401(k) plans are the primary way workers save for retirement.

Yet, Americans are passing up $24 billion dollars of free money annually by not contributing enough to receive a full employer match to their 401(k)s, according to a recent study by Financial Engines.

Financial Engines assessed the savings records of 4.4 million retirement plan participants at 553 companies and found that in 2014, employees missed out on an extra $1,336 a year, or an added 2.4% of annual income. Over 20 years with compounding, employees could be missing out on as much as $42,855.

Employer Match = Free Money

Employer sponsored plans play a vital role in retirement savings — with at least 60 percent providing plan eligibility to all employees. The most common 401(k) employer match is now dollar-for-dollar for the first 6 percent of income that an employee defers, according to Aon Hewitt.

However, some people can’t afford to save enough to get the full match. The Financial Engines study highlights that among people with 401(k)s who earn less than $40,000 a year, 42% don’t save enough to get the full match, compared with just 10% of workers earning more than $100,000 a year.

The study also found that workers younger than 30 are twice as likely not to earn a match compared with workers over age 60.

While retirement may seem like a distant goal, younger workers have the most to gain from the compounding power of matching contributions. Financial Engines estimates that for a 25-year-old worker, losing out on $1,336 in matching contributions every year for 40 years would mean $142,270 less for retirement.

Ways to increase your retirement contribution:

  • Increase your contribution amount gradually by 1 percent of pay every six months.
  • Ask if your employer offers auto-escalation where your contribution rate is automatically increased by one or two percentage points each year.
  • Increase your contribution rate with each pay raise or bonus.

Even if you contribute enough to get a full 401(k) match, don’t stop there. Most investment professionals recommend a savings contribution of at least 10 percent, and ideally 15 percent of your annual income. If you can, increase contributions to your workplace savings plan to the allowed maximum.

The IRS raised the 401(k) maximum contribution limits in 2015 to a maximum of $18,000 for those under age 50. An additional $6,000 “catch-up” incentive can be contributed for a total of $24,000 for those age 50 and over.

Once you do that, you may want to consider opening an IRA or another tax-advantaged retirement savings plan. The total contribution to a Traditional or Roth IRA cannot be more than $5,500 annually ($6,500 if you’re age 50 and older), in addition to income limits.

Why leave free money on the table? According to FINRA, a company match can boost retirement savings several ways:

  • A dollar-for-dollar match is a risk-free return of 100% once you are fully vested
  • The employer match money ALSO compounds on a tax-deferred basis, not just the amount you contributed
  • Puts you that much closer to reaching your retirement goals. Every dollar counts!


Are you taking advantage of your employer-sponsored retirement savings match? How are you maximizing your retirement savings?