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  • Forgetting Free Money

    Chris O'Shea

    A study finds employees are missing out on free retirement money

    According to a new report, Americans aren’t doing all they can to stockpile their retirement savings. The study from Vanguard found that one-third of Americans are failing to contribute enough to their 401(k) to earn the employer match. That’s free money for retirement, left on the table.

    The employer match on a 401(k) is a great feature. As the name implies, this service is when your company contributes a percentage of your pay to your 401(k), as long as you’re saving the same amount or more yourself. The Vanguard report found that the average employer match rate is 4.3 percent of employee salary. Meanwhile, many experts advise people to deposit about 10 percent of their pay to their 401(k).

    So what’s holding people back from getting that free money? One issue is, ironically, auto-enrollment. As Money reports, while this feature is good on the surface — companies automatically enroll employees in 401(k) programs and get them saving right away — it has backfired a bit. The average deposit rate for these auto-enrollment programs is just 3.4 percent, which means employees often don’t hit the match rate unless they manually increase their percentage.

    The good news is that employees seem to eventually understand that they are missing out on free money. The report showed that while 34 percent of auto-enrolled workers don’t start out meeting the employer match, that number drops to 24 percent after just three years. If your company has a 401(k) match, make sure you’re hitting it. Don’t wait around and leave money for retirement sitting on the company’s table.

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