Why You Should Almost Always Max Out Your Employer’s Match

If your employer offers a match, take it.

For those unfamiliar with employer matches, some organization offer their employees additional retirement contributions based on the amount the employer contributes into the plan.

For example, some employers will match, dollar for dollar, up to 2.5% of the employees salary, an employers retirement plan contribution. So if the employee has a $50,000 salary, and they contribute 2.5% of their salary ($1,250), the employer will also contribute $1,250 to their retirement.

But here’s the deal—if the employee does not contribute to their retirement plan, the employer will not contribute any either. If they employee only contributes 1% of their salary ($500), the employer will only contribute $500.

For a variety of reasons, some employees decide to hold off on maxing out their employees match. So why should you almost always max out your employers match? Here are a few reasons:

1. You probably aren’t saving enough for retirement.

Most Americans are not putting enough away for their retirement. How much of your salary should go toward retirement? It depends. Fifteen percent is usually a good start. However, you will want to check out a retirement calculator to get a better idea.

2. If you don’t, you miss a huge opportunity.

Your employer’s match may not seem that significant to you. You wonder how such a small percentage can really make a difference anyway. It can. In fact, over time, it can make a huge difference. A little bit of money can become a large amount of money over time. This is the beauty of compounding. For more on compounding, check out this post.

3. You will barely miss it.

I've seen it happen over and over again—an employer says there is no way they can afford to contribute 2.5% of the salary, or whatever the maximum match amount it. But then they give it a shot. And they realize that the net amount per paycheck wasn’t nearly as much as they thought. Remember, the contributions are based on your gross (before taxes) salary. Contributions to a 401(k) and 403(b) are pre-tax. So the impact to your budget is 2.5% minus taxes. I have heard it said by many, “I actually barely miss it.”

4. It’s your money.

It’s a benefit that is given to you because of your employment. It is part of your employment package. It is your money for the taking. To not take leaves money on the table, money that can have a significant impact on your future retirement.

There are very few reasons not to take your employers match. Often, the match is referred to as “free money.” But it can also be considered “earned money.” You have access to it because of your work. So go ahead and take it. You earned it.