At this step, you know how much you earn and spend, you are thinking a bit more about the future, and you’ve saved up a money cushion for unexpected expenses. Now it’s time to get some free money.
Want to skip this step?
- Earning, Spending and Looking Ahead
- Building an Emergency Fund
- Employer Matching Contributions
- Paying Down Expensive Debt
- Setting Big Goals
- Preparing to Retire
- Seize the Day!
Well, it’s not exactly free… if you are working at a company that makes matching contributions into a retirement plan for employees, you are working for this benefit. But many people are not collecting it!
If you aren’t working at a company with employer matching, you can skip this step for now. But next time you are on the job market, see if you can find an employer that offers this benefit. It’s more powerful than it appears at first glance.
For those of you with access to this benefit, let’s figure out why getting your employer retirement match is such a big deal for financial independence.
Quick summary – there’s just no other reliable, legal way to get 50% to 100% growth on your retirement investment. That growth is due to your employer matching your contribution. But there are limits.
Most employers that match retirement contributions do so at a certain rate, and only up to a certain amount.
About 70% of companies with matching contributions contribute 50 cents for every dollar you contribute, up to 6% of your pay. About 20% of companies match your contributions dollar for dollar, but commonly up to only 3% of your pay.
This match is the free money we were talking about. There are very very few investments in the world that will reliably return 50% to 100% of your money year in and year out. But that’s what your employer is offering to do here, at least up to their limit. So Step 3 on your journey to financial independence is to make sure you are taking advantage of this benefit.
How much can you get from your employer? Here’s an example. To make the numbers easy, let’s say you are paid $100,000 per year.
In the two most popular matching plans, the most your employer will contribute is $3,000 or $6,000.
But how much do you have to contribute to earn the maximum match? Well, it depends on how your employer calculates their contribution amount.
We challenge you to find another investment where you can put in $3,000 in a year and someone else will double your money! That matching dynamic, plus the tax advantaged aspects of most retirement plans, makes saving enough to get all of your employer’s match a very powerful return on your retirement investment.
But we’re not saying it’s easy! If you currently aren’t putting any money into your company retirement account, it’s a big step to start. You have to go to your HR department, fill out forms and choose an investment fund to put your money into. Your contribution will be withheld from your paycheck, so your take-home pay will be smaller than it was before. No wonder only 75% percent of employees take advantage of this benefit!
As part of Step 3, BodesWell helps you calculate the amount you need to contribute to your company retirement plan to get the employer match. Then we help you figure out how much you should be setting aside, and how that fits into your overall plan, because there’s just no better way to turn $3,000 into $6,000.