Paycheck Chronicles

Missing The Match - What Will It Cost You?

I know you wouldn’t walk right by a $100 bill sitting on the ground with your name scrawled on it in big bold print. Sure, you might wonder what was going on and even make a solid effort to find the rightful owner, but you wouldn’t just abandon that kind of cash — or would you?

Hundreds of thousands of workers across America do it every single paycheck. Yes, I’m talking about failing to take full advantage of an employer’s matching contributions to a 401(k) or other workplace retirement plan. A couple of years ago, Financial Engines reported that 25 percent of workers don’t contribute enough to get their employer’s full match. Even at USAA where financial security is at the heart of our mission, roughly 20%* of employees fail to contribute enough to garner all that our employer offers. That’s bad.

With the arrival of the military’s new Blended Retirement System in 2018, I’ve been thinking a lot more about the importance of making the most of an employer’s matching contributions. As you probably know, the Department of Defense is going to be offering up to 5 percent in automatic and matching contributions to service members’ Thrift Savings Plan accounts, but those in uniform will face the same challenge as their civilian counterparts. To get the full 5 percent Defense Department contribution, they’ll have to contribute 5 percent of their own money. And we are back to that $100 bill just sitting there, staring you down. And really, it’s not just one bill, but a sidewalk full of them, and you don’t want to walk blindly past without understanding the implications.

Here are a few number-crunching thoughts that I hope will have you, metaphorically, bending over and reaching for the ground:

Missing out on 5 percent for just a year is bad. Let’s say your employer pays you an annual salary of $50,000. Miss out on a 5 percent match from your employer, and that’s $2,500 that you won’t be getting. Doesn’t sound like a big deal? Well, if you earned a 7 percent return on that money over the next 45 years (age 22 to 67) — that’s more than $50,000 in savings that’s not part of your retirement fund.

Missing out on 5 percent for five years is really bad. By not contributing, you would be making a move that could equate to nearly a quarter of a million in “lost” dollars. 

Miss out on 5 percent for your career, and you’ve created your own TV show: Who Doesn’t Want to Be a Millionaire? And not just a millionaire, but a multimillionaire because the missing million dollars that I calculated based on what you didn’t receive from your employer is only half the story. You’d potentially have over $2 million because your own contributions also would have been compounding over the decades.

Your path to financial security may be littered with cash in the form of employer-matching contributions. Scoop it up and avoid missing out on this life-changing opportunity.

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