Does your employer match your contribution to your retirement account?
Mine does and I hope your employer does too.
You know that a 100% match up to 6% is better than up to 3%.
Did you know the timing of your employer’s match can make you a lot of money?
Or it can cost you a lot of money.
How does timing affect your retirement account so much?
You guessed it compound interest.
Let’s look at some examples so you’re prepared to make an informed decision.
You’re Employer Matches Your Contribution Annually
Many companies match your retirement contribution annually at the end of the year.
This way the company knows they had a good enough year to match your contribution.
And they still contribute in time for the tax contribution. But what does that do to your long-term portfolio value?
Say you invest $500 monthly for 30 years and get a 10% return.
Your company matches your contribution annually.
Your portfolio at the end of 30 years is worth $6,346,539.
You’re Employer Matches Your Contribution Quarterly
What if your company matches quarterly?
This still gives them the ability to assess how profitable the quarter was and helps your retirement portfolio.
If you run the same scenario, your portfolio would be worth $6,464,643.
Your portfolio would be worth $118,104 more than annual matching contributions.
You’re Employer Matches Your Contribution Monthly
What if your company matches monthly?
This is the best scenario for you. If you can find it, stick with it.
In the same scenario, your portfolio would be worth $6,491,296.
A full $144,757 more than annual contributions and $26,653 more than quarterly matching contributions.
In each scenario, you contributed $180,000 and your employer contributed $180,000.
But timing impacted your money by $144,757.
That’s a lot of money.
So the next time you are interviewing for a new job, ask them how they match your contribution.
And pay close attention to their answer.
How does your employer match your contribution?
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