Saving for retirement can be incredibly difficult, and if you feel like you're falling behind, you're not alone. The median 401(k) balance across all age groups is $35,286, according to a 2024 report from Vanguard, while the median balance among those closest to retirement at ages 55 to 64 is only $87,571.
There's no magic solution to make you a millionaire overnight, and any gimmicks that promise such fast results will likely cost you more than you gain. That said, there is one simple trick that I highly recommend everyone with a 401(k) take full advantage of -- and it requires next to no effort on your part.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »
Image source: Getty Images.
The underrated power of the company match
If your 401(k) plan offers a company match, it could transform your finances -- instantly doubling your savings while barely lifting a finger.
With an employer match, your company will match your 401(k) contributions, usually up to a certain percentage of your salary. The most common type of match in 2024 is 50% of a worker's contributions up to 6% of their wages, the Vanguard report found. While that may not sound like much, it can seriously add up.
The median income among U.S. workers is around $58,000 per year, according to the most recent data from the Bureau of Labor Statistics from 2023. If you're earning a 50% match on up to 6% of your salary, that would amount to $1,740 per year in this case.
Now, let's say that you're currently contributing $1,000 per year to your 401(k) while earning a $1,000 annual match. If you're earning a modest 8% average annual return on your investments, here's approximately how that would add up compared to if you'd contributed the full $1,740 per year while earning the same amount from your company match:
| Number of Years | Total Savings: Contributing $1,000 per Year + $1,000 Annual Match | Total Savings: Contributing $1,740 per Year + $1,740 Annual Match |
|---|---|---|
| 20 | $92,000 | $159,000 |
| 25 | $147,000 | $254,000 |
| 30 | $227,000 | $394,000 |
| 35 | $345,000 | $600,000 |
| 40 | $519,000 | $902,000 |
Data source: Author's calculations via investor.gov.
In other words, saving an additional $740 per year (or around $62 per month) while earning that same amount from the company match could boost your overall savings by nearly $400,000 over the length of your career.
Also, if you're earning regular salary increases, you stand to earn even more. Because the company match is generally a percentage of your wages, as your income rises over time, so will the amount you can earn in matching contributions. That alone could increase your savings exponentially.
Even small contributions can go a long way
Money is tight for millions of Americans right now, so if you can't save enough to earn the full 401(k) match, that's OK. But if you can contribute even a little more, that can still add up to more than you might think.
For example, say you can afford to contribute $20 per month to your 401(k) while earning a $20 monthly match from your employer. If you're earning an 8% average annual return on your investments, that $40 per month could amount to around $54,000 after 30 years.
Now let's say that you're able to bump up your contributions to $25 per month, earning a $25 monthly match. All other factors remaining the same, those contributions could add up to around $68,000 after 30 years.
Small steps can make a major difference when it comes to retirement savings. While it's easy to get discouraged if you can't afford to save hundreds of dollars per month, contributing anything at all is far better than nothing. By saving what you can and taking advantage of the employer match, you can set yourself up for a more financially secure retirement.
The $22,924 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
