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Americans are losing out on about $24 billion in free money every year.
That estimate from Financial Engines is based on the investment advisory company’s analysis of the savings records of 4.4 million 401(k) retirement plan participants at 553 companies. The study is the first to estimate the dollar amount of foregone 401(k) matches, Financial Engines tells Reuters.
Financial Engines director of technology Greg Stein also tells Reuters that the $24 billion estimate is probably too low because it does not include employees who don’t contribute anything to their employer-sponsored 401(k) plan.
Among workers who do contribute, the study found that one in four didn’t contribute enough to receive the full match offered by their employers. As a result, each of these employees lost out on an average of $1,336 in employer contributions — free money — last year alone.
That figure does not include the compounded interest those employees could have earned on that extra $1,336, which could have more than doubled their free money over a period of 20 years.
The most common type of 401(k) plan, the study found, offers an employer contribution of $1 for every $1 an employee saves, up to the first 6 percent of the employee’s annual paycheck.
The first step for employees looking to maximize their retirement savings is to find out how much their employers match.
The next step is to do whatever they can to contribute enough savings to get the full employer match.
Workers who can’t immediately start saving enough money to receive their full employer match can get there gradually — although the sooner, the better, as the study puts it. Methods include:
- Sign up for automatic increases of your savings, if your plan offers it. This feature allows employees to increase the amount of their paycheck that goes toward their retirement plan by a set percentage at a set interval — such as 1 percent each year.
- Increase your savings every time you get a raise.
- Take advantage of professional investment advice if your employer offers it.
To learn more, don’t miss “Why You’re Stressed About Your 401(k) — and How to Get Over It.”