Old & Grey With Your 401(K)


Certified Financial Planner Michael Hardy tells us why saving NOW matters…

You’re twenty-something. Or perhaps you’re glancing back at the big 3-0. Odds are, you haven’t given any thought to retirement. After all, why should you? You have decades to figure out that stage of your life, right? Wrong. Not saving enough – early enough – for retirement is one of the biggest mistakes people make in their 20’s and 30’s.

Let’s start by explaining the basics. A 401(k) is an employer–sponsored retirement plan that allows the company’s employees to contribute a portion of their pre-tax salary to their plan and not pay a penny of taxes on it until the money is withdrawn! With the employee’s input, the money is invested in to one or more investment options provided by the plan. Special note to our self-employed friends: you’ll be happy to know that you too can get an individual 401(k).

Here are three great reasons to start – and continue – a 401(k) plan as soon as possible:

1. A 401 (k) account can shave serious dollars off your tax bill. This simply means that contributions to your 401(k) reduce your taxable income dollar for dollar. For example, if you earn $100,000 of gross income and put $10,000 into your 401(k),  your taxable income is reduced to $90,000.

2. Potential to DOUBLE YOUR MONEY. Sounds like a game show, but it’s not. Many employers offer to match your contributions to a 401(k). If you don’t contribute enough to receive the maximum matching contribution, you’re just leaving money on the table.

3. The earlier you start to save, the better off you will be, thanks to a concept known as COMPOUNDING. And it’s a beautiful thing. The interest you earn compounds on itself. Meaning: interest earned on just a few bucks over a lot of years makes those dollars multiply like rabbits.  Compounding makes your money work for you – rather than forcing you to work – and work and work – for your money. The earlier you start saving – even a little something – the more time those dollars have to grow.

Sixty-five might sound a long ways off, but life has a funny way of accelerating. You might be thinking that you’ll wait until your peak earning years to start saving, but don’t forget those will also be your peak spending years! ‘Down the road”, you will may be footing the bill for a fat mortgage and scrimping to pay for private school, not to mention your triplets’ weekly jiu-jitsu lessons! Add that to the fact that Social Security is unlikely to cover more than a minute fraction of the true cost of living for our generation’s golden years, and we’ve presented a compelling case for you to start saving pronto!

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