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How Good Is The Average 401k Match?

Updated: 06/02/2021 by Financial Samurai 57 Comments

Are you wondering how good is the average 401k match? This article will go through what many companies are helping contribute to their employee’s retirement benefits.

In summary, the average 401K percentage match is around 5% of salary up to $3,000. In other words, if you make $60,000 a year, you will get a 401k match maximum of $3,000. If you make $100,000 a year, you won’t get a 401k match of $5,000. It will be capped out at $3,000. But again, this is just the average.

The 401k has always been a curious system. It doesn’t do as good of a job as a pension for life in taking care of an employee’s golden years. But it’s also better than nothing given you get to contribute money tax-free and let it grow tax-free until withdrawal after age 59.5.

In fact, I was so jaded by the 401K system that I recommended everyone max it out, but mentally write it off like I do social security. This way, you are forced to build your “real” savings and investments with your disposable income.

Recently, I got a kick in the pants when a 57 year old financial adviser named Larry told me he has over $5.5 million in his 401K!  Holy crap, I thought to myself. How the heck did he accumulate so much, just in his 401K? The answer was simply longevity, performance, and company match.

401k Millionaire Potential

Larry is a senior partner at his firm. Not a surprise since he’s been there for 35 years!  He has been maxing out his 401K ever since the mid 70s. With a company match of $3,000 plus 9% of his base salary, Larry has been able to accumulate $40,000 to $49,500 every year for the past decade alone!

You see, it’s not just $18,000 one can contribute. It’s $18,000 + $3,000 + (9% X his $350,000 salary) = $51,500 capped at currently $49,500 by law. In 2021, the maximum pre-tax contribution by employee and employer is ~$589,000 and has risen with inflation since.

See: How To Save Over $100,000 Pre-Tax A Year For Retirement if you’re curious to learn more.

Some of us might be thinking, well that’s just a ridiculous example since few people make $350,000 a year, and 9% of my base salary might only equal $5,000 – $9,000. Furthermore, some companies might not be as generous to provide such a high percentage match. If you’re thinking that way, that’s fair. However, you’re missing the point, which is that Larry got to such a lofty 401K balance due to the following reasons.

How One Man Became A 401k Millionaire

1) Larry maxed out his 401K every year. He did so since graduation because he envisioned great wealth during retirement.

2) Larry stayed loyal to his firm for 35 years, which has allowed him to maximize his retirement options and benefits. If you change firms constantly, often times there is a 1 year grace period before a company will match. Furthermore, once you do get the company match, there is a several year vesting period before the money is yours if you decide to leave.

3) With 35 years of service, Larry has ultimately been promoted and given salary increases as well. Not only is Larry a partner, he has also built up tremendous social capital within his firm. Larry doesn’t need to continue working, but he enjoys working with his friends. The average 401k match should rise over time with inflation.

Related: Here’s When You’ll Become A 401k Millionaire

The Average 401k Match Should Increase

Based on an informal survey of friends off-line and on-line, the average 401K percentage match is around 5% of salary up to $3,000. In other words, if you make $80,000 a year, you don’t get $4,000 in free money, but max out at $3,000 for a total of $19,500. The responses I got ranged from 0% to 9% match with many employers providing company profit sharing after a minimum number years of service or company stock grants.

With profit sharing and stock grants, company matching easily rises to 20% of the respondent’s base salary.  20% of one’s gross income going in to one’s 401K as pre-tax income is a fantastic yearly boost!

401k savings targets by age - The Average 401k Match

Max Out Your 401k For Your Retirement

I’ve gone from being a skeptic of the 401K to being a believer.  It’s really hard for me, and I’m sure many of you to see how a 401K can help us much in retirement after the first 15 years of contribution.  But, as we get older, I’ve come to realize that it really isn’t just the 401k contribution which is going in. It’s much more every single year, which is a much more impactful thanks to our employers’ contributions.

Longevity at one place really does have its merits. Just ask Larry with 35 years of experience and $5.5 million in his 401K alone!  It also helps that the stock and bond markets aren’t in a death spiral either.

No longer should we look at our 401K as a pitiful sub-account with woeful contribution to our financial well-being. So long as the government doesn’t pork us in the end with higher taxes upon withdrawal, our 401Ks are going to be huge!

Related: How Much Should I Have In My 401k By Age

Recommendation For Managing Your 401k

 I encourage everybody to get a handle on their finances by signing up with Personal Capital. They are a free platform which aggregates all your financial accounts in one place so you can see where you can optimize. Before Personal Capital, I had to log into eight different accounts (brokerage, multiple banks, 401K, etc) to track my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing, how my net worth is progressing and when my CDs are expiring.

The best part of Personal Capital is their 401K Fee Analyzer tool. It is now saving me over $1,000 a year in portfolio fees I didn’t know I was paying! They’ve also come out with their incredible Retirement Planning Calculator that uses your linked accounts to run a Monte Carlo simulation to figure out your financial future. You can input various income and expense variables to see the outcomes.

Retirement Planning Calculator
Sample retirement planning calculator results

Once you’re done maxing out your 401k, it’s time to build your after-tax investments as large as possible so you can earn passive income. Who wants to work until 59.5 anymore?

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Filed Under: Retirement

Author Bio: I started Financial Samurai in 2009 to help people achieve financial freedom sooner. Financial Samurai is now one of the largest independently run personal finance sites with about one million visitors a month.

I spent 13 years working at Goldman Sachs and Credit Suisse (RIP). In 1999, I earned my BA from William & Mary and in 2006, I received my MBA from UC Berkeley.

In 2012, I left banking after negotiating a severance package worth over five years of living expenses. Today, I enjoy being a stay-at-home dad to two young children, playing tennis, and writing.

Current Recommendations:

1) Check out Fundrise, my favorite real estate investing platform. I’ve personally invested $810,000 in private real estate to take advantage of lower valuations and higher rental yields in the Sunbelt. Roughly $160,000 of my annual passive income comes from real estate. And passive income is the key to being free. With mortgage rates down dramatically post the regional bank runs, real estate is now much more attractive.

2) If you have debt and/or children, life insurance is a must. PolicyGenius is the easiest way to find affordable life insurance in minutes. My wife was able to double her life insurance coverage for less with PolicyGenius. I also just got a new affordable 20-year term policy with them.

Financial Samurai has a partnership with Fundrise and PolicyGenius and is also a client of both. Financial Samurai earns a commission for each sign up at no cost to you. 

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Comments

  1. Indecisive_guy says

    September 23, 2016 at 5:38 pm

    @James: I do expect to stay with the company (its a state university, so I hope it won’t go out of business soon either), and the annuity is a lifetime one. Another advantage of the pension is they are giving me a TDA account, on which there is a 8.25 guaranteed return, which is pretty good. I figure I’ll put a 6% each in the pension scheme and the TDA, and fool around in the stock market with the rest of my savings (appropriately moving stuff into bonds as I age, according to financial samurai’s chart).

    Reply
  2. James says

    September 23, 2016 at 3:45 pm

    Pensions are great if you expect to stay with the same company for the majority of your career. You may want to check with your coworkers to find out the likelihood of this.

    You will need to confirm whether that 55% payment is for a fixed term (e.g., 120 months/ten years) or a lifetime annuitant. Also, check how much you will get if you want payments to continue if you predecease your spouse.

    Figuring on a 30 year career, you will have paid approximately 180% of your annual salary into the pension. If you pay into the 401k, your contribution plus the company match will equal approximately 450% of your salary plus any gains or losses incurred on your investment choices.

    You can roll over either a pension or a 401k into an IRA account if you leave the company; however, some company pensions will not permit a rollover until you are eligible to draw the pension.

    Reply
  3. Indecisive_guy says

    September 22, 2016 at 5:11 pm

    I’m having a hard time choosing between a pension and a 401k. Pension requires me to contribute 6%, and at retirement pays 55% of final salary. In the 401k too my minimum contribution is 6%, but the employer pays 9% as long as I pay my minimum!

    I know the conventional advice is to grab a pension plan when you see one, but this has me confused as hell. Advice?

    Reply
  4. Keykeyadventures says

    July 26, 2016 at 10:03 am

    Haven’t seen any comments on this article. I wanted to provide a 2016 perspective, my company currently only has a Pre-tax 401K plan, matching 50% of the first 6% that you contribute. Also, has immediate vesting.

    Reply
  5. Tippy says

    August 18, 2015 at 9:19 pm

    My company matches 7% of pay and does another 10% in Profit Sharing so a total of 24% of pay goes into my 401K annually at a minimum.

    Reply
    • Financial Samurai says

      August 18, 2015 at 9:43 pm

      Not bad! Hope you are maxing out your 401k then.

      Here’s a 401k savings target chart by age.

      Reply
  6. Rick says

    November 21, 2013 at 6:13 am

    My employer matches three to one (300%) up to 5% of my salary. I have been doing the 5% contribution which is basically 20% of my salary and putting $5,500 into a Roth IRA. I dont have the best fund selection in the 401K but starting out up 300% on my money I will take it every paycheck.

    Reply
    • Financial Samurai says

      November 21, 2013 at 8:35 am

      Not a bad match! But I would advise maxing out the 401(k), and then look at the ROTH IRA.

      In general, I’m opposed to the ROTH IRA idea. Please read: https://www.financialsamurai.com/2012/03/29/disadvantages-of-the-roth-ira-not-all-is-what-it-seems/

      Reply
  7. Dad's Law says

    September 28, 2012 at 2:10 pm

    Wow 150% and 10% is nice. Mine is only 100% and 6%.

    Reply
  8. Marc says

    August 29, 2012 at 9:01 pm

    Man I must be the home run hitter here, 150% match up to 10% of salary or $16,500 whichever is lower. Though the industry standard seems to be around 100% match.

    Reply
  9. Ryan says

    July 20, 2012 at 1:23 pm

    I also get up to 8% salary 100% matched. Seems like I’ve got it good here.

    Reply
  10. Repe says

    February 5, 2012 at 12:33 pm

    up to 8% 100% matched, seems that I am lucky. Lets see how long it continues

    Reply
  11. Kurt says

    May 3, 2011 at 2:52 pm

    My company matches 75% up to the first 8%, or 6% of my total salary, with no dollar cap.

    Reply
  12. Mike - Saving Money Today says

    May 3, 2011 at 5:37 am

    My company matches 50% up to the first 6% of compensation, so 3%. Not the best but not the worst either.

    Reply
  13. Untemplater says

    May 2, 2011 at 7:30 pm

    401k contributions can add up quick and getting a corporate match is such a good way to boost your retirement savings. Increasing your contribution whenever you get a raise is another way to keep yourself disciplined and watch your balance grow.

    Reply
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