Are you leaving money on the table?

Isn’t it the worst when you realize you could have had more? More toppings on your ice cream if you just asked. More star roles in the high school play if you just put yourself out there. More free money if you would have just contributed up to the full match on your 401(k). Wait, FREE MONEY?!?!

Uh huh – Free money!

Don’t feel embarrassed if you had no idea this was a thing – this is exactly what my 4-Part 401(k) series is for. We’re debunking the things you thought to be true, and uncovering those things you had no idea existed, and in Part Two, we’re talking all about the company match and how much you should be contributing to this nifty little retirement plan you’ve got set up for yourself. I promise, this will be much sexier when you’re on the beach thanking your 20-something self and drinking Pina Coladas.

So, what’s this about a match?

Last year I found a jaw-dropping statistic, from Aon Hewitt, stating that nearly 40% of 20-29 year olds, and 31% of 30-39 year olds, are not contributing up to the full amount of the company match towards their 401(k).

But what in Pete's name of hot-fudge-chocolate-lava-cake is a match?!?

Oh, sorry. I skipped ahead to the statistics because I love them so much. An employer match is generally the percentage of your income you can put towards your 401(k) contribution (remember, pre-tax and all that jazz), that your employer will match and also contribute towards your 401(k). That’s FREE MONEY—Straight into your 65-year old glamorous wicker-hat wearing, Pina Colada-sipping self’s pocket.

Need an example? Let’s say your employer match is a generous 6%. This means, if you contribute 6% of your income, before taxes, your employer will match that amount, dollar-for-dollar, up to that 6% threshold. So, let’s say you’re making $30,000 per year ($2,500 per month). If you contribute 6% ($150 per month), your employer will also contribute $150 per month to your retirement savings. If you only contribute 3% ($75 per month), your employer will only contribute $75 per month to your retirement savings, because they only “match” what you put in. See the difference here? If you’re not contributing up to the match, you could be leaving $75 per month of free money out on the table.

A little math and that’s $900 per year from your employer, alone. $1,800 extra a year to your retirement savings from both you and your employer’s contributions.

Let it be known that a match is a match. Once you contribute over that, which you definitely can do, your employer will not match dollar-for-dollar anymore; however, it’s still more money invested into your future and there is absolutely nothing wrong with that. See Option 2, above, as an example.

Well, how much should I be contributing?

Here’s my rule of thumb: Always contribute up to the employer match unless you have absolutely zero money leftover in your paycheck to afford to live or pay off your credit card or student loan debt. This exception does not count if you are looking to buy a new car or get your hands on that amazing new Dior scent from Sephora. You need to take advantage of that “matching retirement income” you get from your employer; after all, it is part of your compensation package.

Have extra money after hitting your match, paying bills, and blasting away debt? Time to consider a few options like a Roth IRA (my number one recommendation for next steps), IRA (an alternative retirement option), automatic investment account (if you will need access to that money before hitting the Florida beaches), or contributing more into your 401(k) (because, a Pina Colada-a-day ain’t cheap).

Now you’ve got a solid foundation towards becoming that millionaire, and I’m halfway through this 4-part 401(k) education series. Have you learned anything yet? Have a burning question you absolutely need me to answer about your 401(k)? Send me an email or hit me up on Twitter or Instagram. I’ll work some magic and weave it into my next podcast or blog post.