If I could tell everyone saving for retirement one thing, I’d tell them to do it with a 401(k)

With costs rising and retirement becoming more expensive than ever, it’s critical to make the most of all the tools in your toolbox to save as much as possible.

The 401(k) is a powerful way to save for retirement and offers some advantages you won’t find with other types of accounts. Taking full advantage of your 401(k) can help you save thousands more, and there’s one thing in particular I wish everyone would do: contribute enough to earn the full employer match .

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Increase your savings by hundreds of thousands of dollars

Many 401(k) plans plan to reduce employer contributions, which are essentially free money.

Each plan differs when it comes to how much you could receive, but among Vanguard 401(k) plans, the most common type of match is 50 percent of an employee’s contributions up to 6 percent of their salary, according to Vanguard 2024. How to save America report.

For some workers, the employer match alone could add up to hundreds of thousands of dollars over time. Let’s say, for example, that you earn $60,000 a year — which is roughly the median earnings of U.S. workers, according to 2023 data from the Bureau of Labor Statistics.

If your employer will match 50% of your contributions up to 6% of your salary, that would amount to $1,800 per year. Let’s also assume that you earn an average annual return of 10% on your investments, which is in line with the historical average return of the stock market. At that rate, here’s how that $1,800 a year would add up over time:

Data source: author’s calculations via investor.gov.

Also remember that these calculations only take into account the employer match itself. Once you factor in your own contributions, you’ll have at least double those numbers.

Also, most people experience salary increases throughout their careers. Because the employer match is generally a percentage of your salary, as your earnings grow, so will the amount you collect from your 401(k). Depending on how much you earn over your career, you could earn $1 million or more from employer contributions alone.

What if you can’t afford to save now?

Times are tough for millions of Americans, and many are barely trying to pay the bills. If this is you, you are not alone. But saving anything — even if it doesn’t seem like much — is better than nothing.

For example, maybe you can only save $20 a month in your 401(k). Throw in the $20 monthly employer match, and assuming you earn an average annual return of 10% on your investments, that would add up to nearly $80,000 after 30 years.

Time is the most valuable resource you have when saving for retirement, so it pays to invest whatever you can afford right now — even if it doesn’t seem like it will make a difference. And if you really can’t afford to save anything right now, that’s okay too. As soon as you are in a place to invest financially, take full advantage of all the advantages you have to maximize your savings.

The 401(k) is an incredible savings growth tool, and the employer match can take your retirement fund to new levels. By contributing as much as you can to make the most of your match, you could save hundreds of thousands of dollars more with almost no effort.