The Biggest Retirement Planning Mistake

A recent report that studied the 401(k) savings habits of millions of workers found that one in four of you are not contributing enough to your account to qualify for your employer’s maximum match.

The average annual amount of money left on the table is more than $1,300 a year.

That is nuts.

If your employer offered you a bonus you wouldn’t turn it down, right? But that’s pretty much what you’re doing when you don’t take the steps to qualify for the maximum 401(k) match.

In all honesty, you aren’t to blame. An unfortunate quirk in many plans that automatically enroll new employees in the 401(k) is that the plans also automatically set your initial contribution rate at too low a rate for you to be eligible for the maximum match.

For example, many plans set an initial contribution rate of 3% of salary. But to get the maximum match requires contributing 6% of salary. I won’t bore you with why this is happening. What matters most is that you can fix this problem ASAP:

• Check in with HR or your plan sponsor (the company that runs your 401(k) plan) and ask what you need to contribute to earn the maximum match. 

• Request to change your contribution rate immediately if you currently aren’t qualifying for the maximum matching contribution. 

• Adjust your spending if you need to. I know it can be a little bit scary to contemplate contributing more, since that will mean a reduction in your take-home pay. Please, please, please push yourself to try the higher contribution rate for at least three months. I think you will find that it’s not all that hard to adjust your spending. And knowing that you are in fact getting the maximum bonus from your employer will make you feel so great about your future.