Key Points
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The average 401(k) match, claimed consistently, could be worth up to $1.38 million by retirement in ideal conditions.
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Your actual rate of return will depend on how consistently you save, how long your match is invested for, and what kind of return you earn.
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Claiming a partial 401(k) match, if you can afford to do so, is better than skipping your match entirely.
The average 401(k) match, claimed consistently, could be worth $1.38 million by retirement, though several factors need to go your way for you to wind up with this sum. You have to consistently claim the average 401(k) match for your entire career and earn a strong average annual return to get the greatest possible value from your employer match.
Reality often prevents the best-case scenario, though. Sometimes, you run into a rough patch and can’t save as much as you’d like. Or your investments don’t perform as well as you’d expected them to. These unexpected bumps in the road don’t need to derail your plans or make you give up on claiming your 401(k) match. You just need to prepare for a wider range of possibilities when it comes to the role your employer-matched funds will play in your retirement.
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How time, investment returns, and consistency affect the long-term value of your 401(k) match
Three major factors, apart from the size of your 401(k) match, determine how big a difference your employer-matched funds make to your retirement savings:
- How consistently you claim your match
- How long that match is invested for before you withdraw it
- What kind of investment return you get on your match over time
The more consistently you claim your 401(k) match, the longer that money is invested, and the larger your investment return, the more money you’ll have overall. But you can’t control your exact investment return, so it’s best to focus your efforts on claiming as much of your match as possible each year and leaving that money invested for as long as possible.
How the average 401(k) match could be worth up to $1.38 million by retirement
An average worker earns roughly $65,000 per year, according to Bureau of Labor Statistics data, and qualifies for a 4.8% 401(k) match, per Fidelity. A 4.8% match on $65,000 would give you an annual match of $3,122, which could grow to be worth over $1.38 million over 40 years, if you earn a 10% average annual return. But if you change one variable, the picture looks very different.
Keep the same 4.8% match on $65,000 and the same 10% average annual return, but halve the years to retirement from 40 to 20, and now you’d only wind up with roughly $179,000 for retirement. When your 401(k) match doesn’t go as far, you’ll have to make up the difference with personal savings, continue working, or settle for a lower standard of living in retirement.
You can’t go back in time to claim matches you’ve left on the table, but you can make a point to claim as much of your 401(k) match as you’re able to each year going forward. Even claiming a partial match can do a lot to alleviate the savings burden on you.
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