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Retirement Planning

Why You Should Contribute To Your 401K

Retirement Nest Egg

If you are a permanent employee or associate at your current place of employment, do you invest in your 401K?  I know that is a bold question but you might be surprised as the answers you get when this question is asked.

Quick and true story:  I worked with a young man who had 3 children whose wife worked inside the home.  He worked for a particular company for 10 years and did NOT ever open a 401K account or invest in it.  Not sure what he was thinking but he went from single to married to married with children so quickly he just never made the time to consider it.

His other thought process was that since he was in his mid 20’s he had time.  OY!!!  It is now 13 years later and I am sure his tune has changed.  He has since climbed the corporate ranks and holds an officer title.  With the growth into a 6-figure salary it is more important than ever to put money aside for retirement and to enjoy those silver years.

Let me shed some light for some of you who still aren’t convinced it is worth your while to contribute to a 401K.

  1.  The sooner you start the more your money compounds and grows.  Imagine how big your 401K would be if you started contributing in your early 20’s until say retirement age of 65?  Assume 12% growth year over year – even with market fluctuations?  That is a lot of mula!  Get out a 401K calculator and do the math.
  2. Why leave money on the table?  Many companies will match up to a certain dollar amount or percentage (based on your salary level or salary band) so once you vest (either right away or after a few years of employment – every employer is different) they are basically giving you even MORE money to save towards your retirement.  Who passes up FREE MONEY?  Not me.
  3. Pre-tax savings.  If you belly ache about the amount of taxes taken out of your check then literally pay yourself first since contributions to 401K are taken out PRE-TAX which means you won’t be taxed on that money until retirement.  Don’t touch that 401K money early either otherwise you will be taxed more heavily as a penalty.
  4. The max contribution in 2014 is $17,500 which is the same amount as in 2013 but that is a lot of money to save up in a single year that continues to compound year over year.

There are several ways to contribute to 401K whether it be through your employer’s plan, ROTH IRA or IRA.  All have their particular advantages (pre and post tax) so you really just need to explore your options and PAY YOURSELF FIRST.

Being new or experienced in the job market should not preclude you to seriously consider saving for your retirement future because you don’t want to be near the end of your career scrambling to save the money you should have in prior years.  It just won’t add up.

Cheers and happy retirement planning!

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