I don’t know about you, but I’m not too keen on working for the rest of my life. I’m confident either I’ll reach a point in my life where I am unable to work (likely due to old age or health reasons), or I won’t want to work anymore (will have punched in and punched out for long enough!). Most of us are in this boat, and unfortunately, relying on the government (via Social Security here in the US) likely won’t cut it. Ask your grandparents how the $1,400/month adds up for them. With rising medical expenses, family obligations and even just wanting to enjoy a little for yourself, that money would go fast! Therefore, saving for retirement is absolutely critical for young professionals and if you’re not doing it already, you should probably start! However, this isn’t a post where I get on my soapbox, you can read a past post for that.

Many of us are able to save for retirement through work, via a 401(k), employer sponsored retirement plan. These are often great ways for us to save: employers often pay any fees associated with maintaining the account, they pull the money right out of your paycheck, offer decent investment options and (the point of this article) offer a match. A match is free money, I repeat FREE MONEY that your employer will kick in to your retirement. They’ll offer this match and as long as you contribute up to that amount (i.e. they match 3%), they’ll kick in their portion (3%). Pretty sweet. A 3% contribution can easily double into saving 6% of your salary for retirement. Not bad! One catch that they will often put in place is a vesting schedule. Vesting means that you get the money in your account, but it’s not fully yours, not until the vesting is complete. Vesting is actually a bit complicated, so if you’re like me and are a bit confused, keep reading to learn more.

What vesting is, why they do it

Vesting retirement matches simply mean that you have to keep your end of the bargain (i.e. remaining employed) for a specified amount of time before you actually get the money. Employers utilize vesting to help keep you loyal and at the company. Many young professionals (author included) hop around from job to job and that’s not always great from an employer’s perspective, as turnover costs money. They have to recruit, interview, hire, train, wait until you’re ramped up before you’re actually earning them money. So, employers want you to stay, and set up vesting as a way to keep you there.

How it works

I’ll start off with a few examples from my own working experience. My first job out of college offered a 2% match, and the amount vested each year in December. So, as long as I contributed 2% each paycheck, they gave me an extra 2% as part of my benefits package. However, if I left before December of any year, I would forfeit and lose all that 2% contribution they had made. So, as long as I stayed until December, my “vested balance” (i.e. what is truly mine) would increase, as my unvested would vest.

My second job operated on a slightly different vesting schedule. At this job, I got a 3% match (an increase of 1% from my old job). The vesting also changed, and my retirement match was set to a 4 year vesting schedule. That meant that if I left (and I did actually end up leaving early) before 4 years, I would only get a portion of the match. With the 4 year vesting schedule, I got 25% on my first anniversary, another 25% my second year, another 25% my third year, and the final 25% at my four year mark. I ended up leaving right before my 3-year mark, so I left with only 50% of my match. So, out off that entire 3% match, I ended up walking away with 50% of it.

At my most recent job, I get a 6% match, which is pretty incredible. For vesting, there isn’t a vesting schedule, and I get the entire 6% right away.

How to take advantage of it

Vesting comes in all shapes and sizes, and it’s important to make sure you understand how it works in your situation. Firstly, make sure you understand the match, and how much they’re actually giving you. Sometimes it may be a straight match, “we’ll match 2%”, which means that as long as you contribute 2% to your retirement, they will as well. It could be “we’ll match the first 3% then $.50 for the next 3%”, which with a simple match tells you they match 4.5% as long as you contribute 6%. Figure out what the math ends up being for what they’ll match vs. how much you have to contribute and make sure you contribute up to that amount. Remember that it’s free money so you might as well take advantage of it!

After you’ve figured out how much they’ll give you, next make sure you fully understand the vesting schedule. Do you have to stay just a year, or four? When do you actually vest and how much will you vest at that time? As we’ll see later on in the post, it may or may not be a consideration to stay, but it is important to understand when you’ll actually be getting the money.

Finally, make sure you are actually saving! The recommended amount by most financial advisors for a balanced young professional (i.e. you’re not trying to retire at age 40) is 15% of your salary. If that seems like a lot, remember that you’re also getting a match. So, at my first job (where I got 2%), I saved 13% of my salary and let them kick in 2%, bringing me to 15%. At my current job, (where I get a 6% match), I’ll contribute 9%, bringing me to 15%. Set your contribution number and stick with it! If you’re not at 15% now, set a number you can afford, ideally at or higher than the match itself so you get all of that free money. Then, each year when you get a raise (hopefully), increase your retirement contribution amount by 1 or 2%. You won’t really be used to that extra money, so go ahead and increase your contribution amount and you won’t even miss it! You can login to your retirement account online and track your progress, seeing your contributions and your employer’s.

Implications for your job (i.e. should you stay or should you go)

Now that you understand what a match is and how it becomes yours (vests), let’s talk about implications for your job and how that should affect any career decisions. I’ve had 3 jobs since I was in college, and have been lucky with pretty decent retirement matches at each one of them. However, as timing would have it, I left my first 2 jobs right before a big vesting event. My first job (vested each year in December), I ended up leaving a month early, and so I forfeited an entire year’s worth of 2% retirement matching. My second job (vested over 4 years), I ended up leaving 2 weeks before my 3-year anniversary, so I left with only 50% of my match instead of 75%.

Did it cross my mind each time I left that I was so close to another vesting event? Absolutely. However, I was operating on my new company’s timing, and so I had to be flexible if I wanted the new job (which I really did). Each of the jobs offered substantial raises to where I currently was, and so it was a simple decision for me; lose a little bit of retirement vesting money in return for a big raise. Although it was a con on my list of pros/cons changing jobs, ultimately the pros of more money and better opportunities won out.

I hope that demystifies the retirement match and how it becomes yours. Best of luck saving for retirement and I hope you’re able to take advantage of the match!  If you’re interested in learning more, check out my full guide on retirement. The first 50 purchases of the guide can use code “ymfguides” for 50% off.

Saving for Retirement