Key Points
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If your 401(k) comes with a workplace match, you should try to snag all of it.
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You might think giving up a little money here and there is no big deal.
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When you factor in lost gains, you could be missing out on more than you realize.
When it comes to building retirement savings, there are few tools that make it as easy and convenient as a 401(k). With a 401(k) plan, contributions are automatically taken as payroll deductions, making it easy to stay on track.
But there’s one mistake you might make in the course of funding your 401(k). And it’s a mistake that could cost you in the long run.
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Why missing your full match is such a costly mistake
If your employer offers a 401(k) match, that’s effectively free money for your retirement savings. But if you’re not snagging that match in full, you may be hurting yourself more than you think.
Say your employer’s match is worth up to $3,000, but you only contribute $2,000 to your 401(k). That means you’re giving up $1,000. Now, let’s say you do that for five years in a row, denying yourself $5,000 in total.
You might think $5,000 isn’t a big deal. By itself, it may not be. The problem, though, is that you’re missing out on lost gains on that $5,000 — and over time, that could be substantial.
If you were to invest $5,000 at an 8% yearly return, which is a bit below the stock market’s average, over 35 years, it could grow to almost $74,000. Depending on your retirement income needs, that could be enough money to cover a year or two of expenses, especially when combined with Social Security.
Don’t give up that money
When you’re new to the working world and have an entry-level salary and student loans to pay, it’s easy to see why claiming your full 401(k) match may be easier said than done. But it’s important to realize what a gift that money is. Not only can it pad your 401(k) in the near term, if you invest it wisely, it could become a lot more money over time.
That’s why you really should do everything in your power to snag your full workplace match. That may mean cutting spending to free up room in your budget for larger 401(k) contributions. It could mean having to live with a roommate for a few years instead of getting your own place, or working a side gig for a while on top of your full-time job.
But in the long run, you’ll be thankful for the extra money — not just because of its initial value, but because of what it grows to be worth eventually.
The $23,760 Social Security bonus most retirees completely overlook
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