Understanding Employer Retirement Matching

Understanding Employer Retirement Matching

by Jun 26, 2018

One of the best secret weapons in any employee’s retirement planning arsenal is an employer retirement matching program. While not all employers offer them, those that do are giving their employees a huge advantage in planning for the future.

If your employer does offer a retirement matching program, but you’re not currently taking advantage of it, you should absolutely start maxing out your contributions as soon as possible.

What Is Employer Retirement Matching?

Employer retirement matching is actually very straightforward: it means that your employer contributes a certain amount to your retirement savings plan (usually a 401k account) based on the amount of your own annual contribution.

For example, if your employer offers 100% matching, then if you put $1,000 into your retirement account your employer will contribute the exact same amount, for a total of $2,000.

Now, not all employers match 100% of employee contributions, and those that do almost always have a cap on how much they’ll contribute. A common example is an employer matching employee contributions 100%, up to 3% of their annual income.

Using that example, an employee with an annual salary of $50,000 will receive a maximum contribution from their employer of $1500, assuming the employee puts that much in themselves.

Advantages Of Matching Programs

If it’s not obvious already, the biggest advantage of employer matching programs is free money. Let that sink in for a second.

If you’re working for a company that offers any sort of employer retirement matching program, all you have to do is make a contribution to your own retirement account each year–something you should be doing regardless of if your employer matches or not.

Another major advantage is that the money is tax free until withdrawn from your account. Free money with no taxes? Yes, you read that right.

If you think an employer matching program sounds too good to be true, this is one of the very few cases in life in which you’d be wrong. Again, not all employers offer these kinds of programs, and often there are various requirements you must meet to get the full benefit, such as remaining with the company for a specific period of time.

Overall however, employer retirement matching is hands-down one of the best ways to quickly build up a healthy retirement account, and every employee that has access to such an opportunity should take advantage of it.

Employer Retirement & Financial Planning

One thing to remember is that while an employer retirement program is an excellent opportunity, it should not be the sole component of your entire retirement plan.

Working with an experienced financial planner allows you to create a balanced and more cohesive retirement plan that isn’t solely dependent on what your employer provides. This means that if your employer 401k account suffers a loss, your overall retirement fund won’t be nearly as affected.

To learn more about employer retirement matching, financial planning, and planning for retirement, give us a call today.