Skip to Content

Maximize Your Employer's Retirement Match

Here's how to take advantage of your company's contributions.

In the turmoil and volatility caused by the coronavirus pandemic in 2020, many companies reduced their matching contributions to employees' retirement accounts, or even eliminated them. But many companies tend to reinstate these benefits when times improve.

If you are lucky enough to earn a company match on your retirement contributions, Morningstar's director of personal finance Christine Benz recommends that you plan to take advantage of each and every one of those dollars. Remember, it's free money!

"This is particularly relevant if a) you're highly compensated and b) you expect to receive a bonus early in the year," Benz says. "That's because you're only allowed to contribute a certain dollar amount to your retirement account in each calendar year. If you receive a big bonus early in the year and you're contributing a bigger percentage of your salary to your retirement account than your employer is matching, there's a chance that you'll hit your dollar contribution limit well before the year is over. In turn, you won't be able to take full advantage of any matching contributions your employer would have made in the remainder of the year."

When it comes to a bonus, the important takeaway is that you should check with your employer to find out whether your retirement contribution is being deducted from your bonus. If it is, you may want to lower the percentage amount that you're contributing to your retirement account before you receive the bonus, Benz says.

"In so doing, you'll ensure that your own contributions are spaced throughout the year, and you'll be able to take full advantage of your employer's matching contributions," she adds.

A Million Dollar Retirement Account

Our discussions of a million-dollar retirement account always garner a lot of attention. But is a $1 million nest egg enough anymore? 

Well thanks to inflation, your $1 million will be worth closer to $500,000 of today's dollars after 36 years, at current inflation rates. A million dollars sounds like a lot of money, and for frugal people it may be enough--especially if their savings rates were very high in the years leading up to retirement. But for people who have higher spending wants or needs, $1 million probably isn't going to be enough, Benz cautions.

The sad fact is that our dollars grow less valuable because the costs of the things that we buy trend up over time. Starting with a $1 million target isn't a bad idea, as long as you re-evaluate it--early on once every five years, and then annually.

Start with small goals and work toward gradual increases. For example, start out by saving 10% a paycheck but plan to increase that amount by at least 1% or 2% per year. Benz adds that this strategy syncs up with many people's earnings patterns as well; salaries start on the small side but ramp up over time.

Finally, while investing can be incredibly powerful, ultimately your savings rate will be the key determinant of your success or failure, according to Benz. That's not a particularly revelatory point to make, but it's empowering--you're in charge of your financial future despite the vagaries of the market.