Here's What the Average 401(k) Match Is Worth
A 401(k) match is one of the most desirable employee benefits available. It's essentially a bonus, and it takes some of the burden of saving for retirement off of your shoulders. Even if you only get a few hundred dollars today, it could be worth tens of thousands of dollars by retirement.
But the actual value of your match depends on several factors, like your company's matching formula, your salary, and your investment rate of return. This is unique for everyone, but we can get a sense of how valuable these matches are by looking at how much the average worker receives right now.
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How much is the average 401(k) match worth?
A 401(k) match typically pays $1 or $0.50 for every dollar you contribute up to a certain percentage of your income. Each company sets its own formula, but the average match is 4.6%, according to Vanguard's How America Saves report. This is slightly higher than the 4% median match. But this alone doesn't tell us how much the typical match is actually worth. To determine this, we have to look at income as well.
The average privately employed worker earned $1,200.50 per week in June 2024, according to the Federal Reserve Bank of St. Louis, which comes out to $62,426 per year. A 4.6% match on this amount comes out to $2,872 annually. In actuality, total contributions to your 401(k) would be at least double this, or $5,744, because you'd have to contribute at least an equal amount of your own money to earn the match.
That's already a pretty large sum for most people, but it's really the tip of the iceberg. If you consistently claimed a $2,872 match annually for 20 years, you'd wind up with $135,991 if you earned an 8% average annual return.
This doesn't include your personal contributions to your retirement account. If we factored those in, you'd have at least $271,982 at the end of 20 years. This also doesn't account for future raises that could increase the size of your match beyond the averages used in our example.
It's quite possible that your 401(k) matches alone could fund several years of living expenses, especially when paired with Social Security. So it's definitely worth the investment to claim your matches if you're able to. If you choose not to contribute to your 401(k), you won't have the opportunity to earn this money another way.
How to claim your full 401(k) match in 2024 and beyond
The first step to claiming your 401(k) match is to understand how your company's matching formula works. You can figure this out by checking with your company's HR department or your 401(k) plan administrator. Once you know this, you can work out the dollar amount you must set aside to claim the full match.
Say your match is $2,500 and you have to set aside $2,500 of your own money to get it. You've already contributed $1,000 this year so far. That means you have $1,500 left to save in 2024. You'd divide this by the number of pay periods left in the year to figure out how much you must set aside per paycheck to reach your goal.
Obviously, you're free to set aside more than this if you'd like and doing so could further improve your retirement readiness. If you're not able to claim the full match due to financial constraints, do what you can. Even a partial match could still be worth tens of thousands of dollars after it's been invested for a few decades.
Be sure to reassess your 401(k) contributions each year to ensure you're still setting enough aside. Remember that raises and changes to your company's matching formula could affect how much you must set aside to claim your full match. Adjust your contribution amount accordingly so you don't leave any of this money on the table.The $22,924 Social Security bonus most retirees completely overlook
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