It’s difficult to put aside money for retirement, especially when it’s tight. With a recession possibly on the way, saving for the future is that much more difficult.
However, economic downturns may be one of the finest opportunities to invest. The prices of stocks are significantly lower today, allowing your money to go further than it would during a market boom. If you can manage it, continuing to invest now will pay off handsomely in the long run.
There’s also a straightforward technique to increase your savings by hundreds of thousands of dollars with little effort: earning employer-matching 401(k) contributions.
Double your savings without lifting a finger
If your employer offers matching contributions through your 401(k) plan, you should take advantage of them. This is essentially free money that can quickly double your savings.
This benefit isn’t available in all plans, but if it is, your employer will match your 401(k) contributions up to a certain percentage of your income. While it may not appear to be much today, the employer match can add up significantly over time.
The typical weekly earnings in the United States as of 2021 will be around $1,000, or roughly $52,000 per year. The average 401(k) match is 3.5% of pay. In this example, that works out to $1,820 in matching contributions each year.
Another $1,820 per year may not appear to be much of a difference. But let’s assume your investments yield an average return of 8% per year, which is just slightly below the historical average. After 30 years, that $1,820 per year would grow to almost $207,000.
Keep in mind that this is only considering your employer’s match. Your total savings, when you include your own 401(k) contributions, would be at least twice as much.
How to earn even more
Although a retirement fund worth hundreds of thousands of dollars puts you in a strong financial position, it is conceivable to make even more money. You may enhance your contributions or give your money more time to mature to maximize your investments.
If you’re able to save more each month, that money will go a long way over time. However, this isn’t always feasible, depending on your financial situation. In such situations, you can simply keep your funds invested for longer.
Assume you’re putting aside a total of $3,640 each year, or $1,820 in your own contributions plus the full employer match. With an 8% average yearly return, you’d have roughly $412,000 after 30 years.
However, suppose you kept investing for a further five years. Given that everything else stays the same, you’ll have a total of roughly $627,000. You’d have more than $942,000 after 40 years.
Your employer match is also adjusted to reflect your rising income. As you progress in your profession and receive higher salaries, the amount of money you get from your employer match will increase as well.
Saving for retirement is one of the wisest financial decisions you can make, and now is an excellent time to put money into your nest egg. You may significantly increase the amount of money you save if you use every possible avenue to receive employer matching contributions.