Do you remember when you first started at your job?
Do you vaguely remember sitting in an HR meeting where they discussed your employment benefits?
I’m sure one of the items they discussed was retirement benefits.
Many firms will offer to match your retirement savings contribution as part of your employment benefits.
Your employer offers you this match in lieu of an old school pension option.
At that time, they probably mentioned a catch but you may not have heard it.
The catch comes in a potential loss of benefits when or if you leave your job before a certain time period.
If you leave the job early, you are at risk to lose some of the retirement benefits your existing employer gave you.
You want to put yourself in the best position to get the most out of the benefits available to you.
So the first step is to contribute enough of your own paycheck to get the full amount of the match you are eligible for.
It’s definitely important it is to take advantage of your employer’s match. It’s the money that you are entitled to for contributing to your retirement.
The exact match will of course vary by your employer, but it’s common to see a 3-5% match.
After you start receiving those benefits, be aware that for most companies, the full amount of money they match each pay period is NOT yours… immediately.
Instead you gain ownership of that money over time through a vesting schedule.
So when you open your 401k statements or check the balance online, you have to be mindful that the entire balance in that account is NOT all yours. At least not yet…
Lots of firms choose to use a 5-year vesting schedule.
The typical structure for a 5-year schedule is that you are eligible for 20% of your employer’s match after each year of employment.
Time for an example.
Let’s assume your benefits plan gives you 50 cents for every dollar you contribute with a 5-year vesting schedule.
Vesting only applies to the money that your employer puts in.
So in this scenario, if you leave your job after the first year, you wouldn’t get $50. You only have rights to $10.
Hope that helps. Just shining little rays of sunshine into what can be a confusing world of finance.