Have you ever met anyone that turned down free money? If you came into work today and your boss told you he’d give you an extra 4% of your salary, no strings attached, would you turn him down?
These sound like ridiculous questions, yet over 25% of people eligible to receive an employer match at their job do not do so. An employer match is essentially when your company offers to match a certain amount of money towards your retirement if you contribute the same. So for example, if an employer offers a 4% match, anything you contribute towards your retirement up to 4% will be doubled by your employer. That’s free money!
Let’s face it, contributing to a retirement account is boring, the money seems a long ways away and isn’t any “fun” in the meantime. That said, it’s something you need to do, and the younger you are when you start, the more money you’ll have when you retire. An employer match is the perfect way to jump start your retirement, and again, by not taking advantage of it, you are leaving money on the table.
How much should you contribute? I would recommend no less then your employer will match. There are various limits to the amount you can contribute to a 401k in the USA, but most likely you won’t need to worry about hitting these limits. Do what you can afford, but I recommend not doing less then the employer will match, just to take advantage of that free money.
It may seem difficult to part with that extra money out of your paycheck, one way to soften the blow is to increase your contribution whenever you receive a raise. That way, your paycheck will be the same, but the money contributed will increase. We’ll cover what to do with the money later, but for now the most important thing is start contributing to your retirement and do no less then your employer will match.