Losing a 401(k) match could cost you more than $2,000 a year, and possibly hundreds of thousands of dollars over your lifetime when you factor in lost investment growth. That’s not an enviable position, yet it’s the reality for the approximately 5% of U.S. workers whose employers have reduced or eliminated their 401(k) matches in response to the pandemic, according to a recent Principal survey.
If you don’t want a change like that to derail your retirement plan, take the following steps now to compensate.
Figure out how much you’re losing
Start by calculating how much your employer match was worth to you before, and how much it will be worth from here. If you earn $50,000 a year and your company used to match contributions up to 5% of your salary, but now only matches 3%, you’re losing 2%, or $1,000 a year. If your company eliminated that 401(k) match completely, you’re losing 5%, or $2,500 a year. This assumes that in the past you contributed enough to your 401(k) in the past to get your full match.
Increase your personal contributions
Once you know how much your employer’s move is going to cost you in terms of annual contributions, you can develop a plan. The most obvious way to make up for those lost employer contributions is to increase the percentage of your salary that you route into your retirement plan. You can update your 401(k) deferral percentage through your online account or by talking to your company’s HR department.
But what if you don’t have enough wiggle room in your budget to just shift those funds to make up for the shortfall?
In that case, you’d be well advised to try to reduce your recurring expenses. That may be difficult to do, especially during the holiday season, but comb through your bank and credit card statements and look for places that you could curtail your spending.
Another option if you have a little extra cash to spare, but not as much as you need, is to invest more through an Individual Retirement Account instead. IRAs offer a lot more flexibility about what you can invest in and how much you’ll pay in fees, so it’s possible to earn better returns than you’d get with your 401(k). And through the power of compound growth, small differences in annual returns can really add up over the long term.
Rethink your retirement plan
If your financial situation precludes you from making up for a lost 401(k) match out of your own pocket, think about altering other aspects of your retirement plan. Planning for a less expensive lifestyle in retirement is one option, though it’s not always the safest bet. You may have every intention of sticking to a certain budget, but unexpected expenses arise.
Read More: My Employer Eliminated My 401(k) Match. Now What?