You may not be able to max out a 401(k) or contribute as much as you’d like.
At the very least, aim to contribute enough to claim your workplace match.
If you don’t, you’ll be giving up free money and so much more.
If you were to max out your 401(k) year after year and invest your savings wisely, there’s a good chance you’d be in for a very comfortable retirement. But maxing out a 401(k) is far from easy.
To max out today, you need to contribute $24,500 a year if you’re under age 50, or $32,500 if you’re 50 or older. Not only might maxing out a 401(k) be off the table, but given how expensive life is today, you may not even be able to contribute a much smaller amount.
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But even if that’s the case, perhaps the single most important 401(k) move you can make this year is contributing enough to claim your workplace match in full. If your company offers matching contributions, failing to contribute enough to earn the entire match is like leaving part of your paycheck behind.
Many employers match a portion of what employees contribute to their 401(k) accounts. If your company matches 3% of contributions and you earn $80,000 per year, contributing $2,400 out of your own paychecks gives you access to another $2,400 you can then save and invest.
The latter point is important. When you give up a 401(k) match, you lose the opportunity to grow that money into a larger sum.
Say you’re 25 years old and retirement is 40 years away. If your 401(k) generates an 8% yearly return, which is a bit below the stock market’s average, and you give up $2,400, you could end up with about $52,000 less in retirement savings after accounting for missing gains.
Over a long career, consistently capturing your full employer 401(k) match could add tens or even hundreds of thousands of dollars to your retirement savings. So even if you’re balancing other financial priorities, such as paying off debt or building an emergency fund, contributing enough to receive your full employer match is often worth it.
If you’re struggling to find the money, here are some quick tips:
While maxing out a 401(k) is certainly tough, contributing enough to claim your full workplace match is an opportunity you shouldn’t pass up — even if it means making some sacrifices.
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