This is a guest post by Lisa from http://get401krolloverinfo.com. Lisa discusses 401k plans and the importance of investing early.
When we are little we start thinking about our future. We start thinking about things like what we want to be when we grow up or where will we live, but you never hear kids talk about how much money they will have when they retire. That is of course because as kids they don’t even know what retirement is, but as we start getting into our late teens and early twenties we start to learn about retirement and understand that we have to plan for our future. We start to realize that what we do today plays an important role in where we will be tomorrow. That is why investing in your 401k retirement fund at an early age is so important. You are planning for the future. What you invest today will greatly impact your quality of life 30, 40 or 50 years from now.
From your very first job to your very last, you should be investing in your employer’s 401k plan if it is provided and here are 3 simple reasons why:
• If your employer matches a certain percentage of your contributions then you definitely want to invest because you will be receiving free retirement money from your employer. You want to invest at the very minimum enough to get your companies matching contribution.
• When you invest in a 401k plan you are using pre-taxed dollars, which means Uncle Sam has yet to get his hands on your money. This means that every penny that you invest gets put to use. Over time your money and the interest that it has earned compounds and continues to earn more interest. So for example if you invested $1 and you earned $.25 in interest on that $1, you now have $1.25 earning interest, as opposed to just $1.
• It’s automatic, which is important when it comes to saving! Some people set a budget and commit to putting a certain percentage into savings each paycheck, but it is too easy to not follow through. Your 401k contributions are automatically taken out of your paycheck each week (before taxes) and are invested. There is no opportunity for you to take that money and spend it on something else, like shoes, clothes or a new gadget.
Investing in your employer’s 401k plan the minute it is available to you is one of the most important steps you will take for your future. You are saying to yourself and to your employer that your future is important. Just as investing is a priority keeping up on your 401k plan is equally as important. You don’t always want to just set it and forget, and here are 2 reasons why.
• You want to make sure you are getting the most bang for your buck. Each quarter you will receive a statement that shows you how your investments are performing and it’s important to really take the time to learn and understand what your investments are doing for you. If you are unsure you may want to consider meeting with a financial advisor or someone you know that is very savvy with investing to help you get a better understanding. Going over the statement each quarter will help you determine if you are investing wisely.
• If you decide to go work for another employer you need to make sure you put your 401k plan at the top of your priority list and do not forget about it. You have 3 options available to you: Perform a 401k rollover, cash out your money or leave it with your previous employer. It is important to understand all 3 options. Cashing out your 401k before the age of 59 ½ will result in hefty taxes and penalties. If you leave your money with your previous employer they may charge you account maintenance fees. Performing a rollover to your new employer is usually the best option because you will only have one account to maintain as opposed to several.
So if you are not investing in your company’s 401k plan, do so as soon as possible. If you currently have a 401k, take the time to understand your investments and make sure they are working well for you at your current age. Don’t just set it and forget it. Make sure you are on track to retire healthy, wealthy and wise!
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Sorry Lisa, I had some tech issues and had to restore the database and your post was lost. Fortunately I was able to repost it but all the comments are gone!
My comment was simply that a combination of automation and our 401(k) and Roth IRA has single-handedly helped us build up the majority of our net worth. Contributing the minimum to get the max company match is a great first step for saving for a person’s future!
Good reminder!
Hey Mike!!
No worries. I actually haven’t had time to make it over here until now. Appreciate you posting the article and hopefully it encourages at least one person to enroll. I know that 401k’s have taken a hit in the past few years with the economy but things bounce back and it is still a good choice to make. Automation is key! We all want to save for our future but wanting and doing are very different.
Thanks!!
Lisa
The main advantage associated with 401(k) is that the money is contributed before it is taxed and your employer may be matching your contribution with company money.