How to get free money

Chapter 45: How to get free money

If you’re like most people, the idea of getting something for free appeals to you. And when that something is money, it’s even better.

That’s why it’s surprising millions of Americans leave billions of dollars of free money on the table each and every year.

That money comes in the form of their retirement plan match.

A match is a contribution made by your employer to your retirement savings account equal to the amount you save in it (up to a certain level). According to Financial Engines, a workplace financial advisory services firm, Americans leave a total of $24 billion of match money unclaimed each year. That’s an average of $1,336 per working person.

Your employer likely offers a match if it sponsors a 401(k), 403(b), 457 or other similar workplace-based retirement plan. They do this is to encourage employees to save more money in the plan.

Here’s how it works

Let’s say your employer offers a three percent match. (Match levels typically range from two to six percent.) If you save three percent of your pre-tax salary in your company retirement plan, your employer will contribute an additional three percent to your retirement account. That takes your total annual savings level up to six percent of your annual pre-tax salary.

Tip: One of the benefits of saving in a 401(k) is that you do so using pre-tax dollars. This gives you more money to save for retirement than using dollars that the government has taken taxes out of.

Here’s an example of how maxing out a three percent match could impact your retirement. If you earn $50,000 a year and save three percent of that in your workplace retirement plan, it comes to $1,500 per year. Your employer matches that with an additional $1,500 contribution, bringing your total annual savings up to $3,000. If you continue to do this for 20 years, and earn an average six percent annual return on your savings, you will have more than $125,000 saved for retirement.

There is one small qualification some employers place on matching contributions. It’s likely that you’ll be required to work for your company for a certain length of time — usually between two and five years — for you to own the matching contributions outright. Sometimes employers will release matching money in annual increments, such as 20 percent per year over five years, 25 percent per year over four or 50 percent a year for two years.

You shouldn’t let this small qualifier keep you from taking advantage of a matching opportunity. According to the Bureau or Labor Statistics, on average, the typical worker stays in a job for more than 4 years. It’s likely you’ll work for your employer long enough to own all your matching dollars outright.

Leveraging your company’s match is an easy way to earn additional money to save for retirement. Another way to do this is to work part time prior to and in retirement or to start an online business. This is a particularly good, flexible solution if you already have a full-time job. An online business allows you to work when — and how often — you want. The cost of opening one is relatively low and getting started is easy.

What are you waiting for? Take a few minutes to find out how easy it is to start a business and how much you could earn for retirement over time.

 

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