What Financial Planners Wish Everyone Knew About Employer Match Programs
At Aspen Wealth Strategies, one of the most overlooked and misunderstood wealth-building opportunities is the employer match option for our clients’ 401Ks.
According to Vanguard funds, 95% of employer retirement plans have a company match, and up to 50% of all 401Ks offer some kind of employer contribution.
But, we often see several problems with these plans. Many people are unaware their employer’s offer a retirement plan, they don’t understand how they work, or they are struggling financially and think they cannot spare money to invest.
When our Aspen Wealth Strategies team was helping a business with a simple IRA plan, we realized their employees didn’t understand how stocks worked, or the difference between stocks and bonds. Some of their employees weren’t putting money into their retirement plans because they were fearful it was a gamble. And others just didn’t know how much to put in, so they were not taking advantage of their full employer match.
Too many employees were leaving valuable investment opportunities and money on the table!
What we wish our clients understood: An employer match is free money that, with time, will turn into more free money. Here’s how it works.
What is an employer match program?
When an employer offers a “match” to a retirement savings program, it means that they will match your own contributions dollar for dollar up to a certain percent of your total salary. This money is above and beyond your salary, not taken out of it.
So, for example, let’s say you make $40,000 per year. Your employer will match that contribution up to 4% of your total salary. 4% of $40,000 is $1600 of free money from your employer. All you have to do is contribute $1600 or more from your salary to your retirement fund.
If invested for over 30 years at a 6% return, that one year’s match of $1600 from your employer can grow to $10,000 over 30 years and your $1600 could grow to $10,000 as well for a whopping $20,000. And again, that’s just ONE year’s match. Now, imagine if you take advantage of that match every year. That’s a significant contribution to your overall retirement.
If you’re afraid of the stock market, not to worry—your retirement money doesn’t have to go there. You can opt for something called a stable value fund, or bonds, and still have your employer match these funds. You won’t get the same appreciation, but the risk is lower.
Another option that can help alleviate concerns is a target date fund. It starts out more aggressive, and is professionally managed to become more conservative as you get closer to your retirement.
So as your get more confident in your financial journey, definitely investigate your options through your employer and financial advisor. If you’re not taking advantage of an employer match, you’re leaving money on the table.
Feeling overwhelmed about investing for retirement? Let Aspen Wealth Strategies help you set up a plan to make the most of your retirement funds. Call us (303) 421-1113 for a free consultation.