A surprising number of Americans actually don’t. Many employees are offered that incentive in the form of a 401(k) match and for whatever reason, end up turning it down. Our new research report estimates that Americans are likely to leave a total of $24 billion in unclaimed 401(k) company matches on the table each year.
We arrived at this startling number by looking at the saving records of 4.4 million retirement plan participants at 553 companies. We found that one in four employees (25%) miss out on receiving their full company 401(k) match by not saving enough on their own. The typical employee who fails to receive the full match leaves $1,336 of potential “free money” on the table each year. For the average employee, that’s an extra 2.4% of missed annual income. (See infographic for more.)
With compounding, this could amount to as much as $42,855 over 20 years!
Why do so many employees miss out on potentially receiving thousands of dollars every year?
Employees tend to save more for retirement as they age and earn more money. For example, 42% of plan participants earning less than $40,000 per year do not take full advantage of their employer match. That compares to just 10% of employees who earn more than $100,000 annually. Likewise, employees under age 30 are approximately twice as likely to miss out on their employer match compared to employees over the age of 60 (30% vs. 16%).
For many employees, middle age poses additional savings challenges. We found that the steady decline in employees missing out on their match is interrupted between ages 35 and 45, when the rate of decline flattens out. While we didn’t specifically look at why this savings dip occurs, it may have to do with the growing costs of raising a family, saving to send kids to college or buying a home.
Advisory Services Provide a Helpful Nudge
Our report showed that employees across all ages and income levels who used advisory services were less likely to miss out on any of their employer match compared to those not receiving this help. For example, 25% of employees who earn less than $40,000 and who use professional advisory services missed out on part of their employer match, compared to 44% of people who did not use advisory services.
Know your plan. Find out how much your employer will match your 401(k) contributions and strive to save at least enough to get the full match.
Get professional help. If you have access to professional investment help (online advice or managed accounts), take advantage of that benefit.
Ask a financial advisor. Talk with a financial advisor who has a legal commitment as a fiduciary to put their clients’ interests ahead of their own.
Commit to save more when you can. If you can’t afford to save enough to get the full match today, increase your savings rate when you get your next raise — and each raise thereafter — until you reach your 401(k) contribution limit.
Greg Stein, Financial Engines director of investment technology, had this to say about the report and the importance of saving enough to get the full employer match:
“The 401(k) match is one of the best deals going for employees, providing an immediate 100% return per dollar invested. Maximizing your available 401(k) match is a key way for millions of American employees to improve their retirement security. While many people might feel like they can’t afford to save more, we hope that these numbers help them realize that they can’t afford not to.”