American workers are throwing away $24 billion each year.
That’s how much is left on the table annually by employees who don’t save enough in their retirement accounts to take advantage of the full employer 401(k) match, according to estimates from Financial Engines, an investment advisory firm that studied the savings habits of 4.4 million plan participants at 553 companies.
One-fourth of workers missed out on at least part of the match, according to the report. For the average employee, the missed opportunity is equivalent to turning away a check for $1,336 each year.
People who don’t know how much to stash away in their retirement accounts are often told by financial advisers to save at least enough in their plans to receive the full company match. Anything less amounts to turning away free money, but figuring out exactly how much should be saved to get the full match will depend on the employer.
Workers should start by understanding how their plan works, said Greg Stein, director of financial technology for Financial Engines. For instance, someone at a company that will match dollar for dollar for contributions up to 3 percent of pay and 50 cents after that for contributions up to 6 percent, should contribute at least 6 percent to get the full match.
The share of people missing out on the match generally declines with age, either because retirement is hitting closer to home or because they are making more and can afford it. The portion of people not maximizing the match drops to 16 percent at age 65 from 35 percent at age 25.
The only exception is during the 30s and 40s, when people might reduce their contributions if they’re struggling with child-care costs or education expenses, the report said.
Low-income workers are more likely to be missing out on the benefit. Forty-two percent of people earning less than $40,000 are not receiving the full match, compared with 10 percent of people earning more than $100,000 a year.
But turning away the cash leads them to miss out not only on the annual match but also on the investment growth those dollars would see over time. The $1,300 annual match would grow to $42,000 over 20 years – not including the worker’s own contributions. For a 25-year-old with 40 years until retirement, it would grow to more than $142,000.
