A 401k is a super easy and effective way to get started saving for retirement. The sooner you begin the more likely you are to receive a high five from your future self.
Far too many workers are not actively planning for their retirements. Some believe theyâ€™re too young to start planning for an event so far in the future that itâ€™s almost inconceivable. Others believe they canâ€™t afford to put any money into a retirement fund. The thing they have in common: they havenâ€™t considered a 401k, which allows even the most meager of investors the ability to retire in style.
So what is a 401k? Simply put, a 401k plan is a contribution retirement plan. This means you contribute however much you want and your employer automatically deducts the amount you set into an account for you. Most employers will offer a matching contribution for you which is essentially free money.
Simple as that.
Of course there are a few esoteric details and some more strategic ways in which a person can grow their money, but for most of us it is really quite simple.
There is, however, one important factor: starting early.
According to CNNâ€™s Money site, if a person starts saving $3,000 a year starting at age 25, and quits putting money into the account 10 years later, by 65 they would have turned their $30,000 investment into $472,000!
Meanwhile, if a person waits until 35, and saved $3,000 a year for 30 years, theyâ€™ll have invested $90,000 and their savings will have only grown to a mere $367,000 by 65.
Interest is a beautiful thing. So why arenâ€™t more of us taking advantage of this opportunity?
As stated above, some of us still believe weâ€™re young enough to waitâ€”that one day weâ€™ll start thinking about it. But Iâ€™m here to say that the earlier you start, the better off you will be when youâ€™re older.
And it’s not like that money is untouchable until retirement! For example, if ever a 401k holder is in financial dire straitsâ€”such as being hospitalized, behind on mortgage payments, etcâ€”they can borrow from their plan. Furthermore, even if a person is no longer employed at the company where they started their 401k, they can move the money into an IRA, their new employerâ€™s plan, or cash it out (the latter comes with an early withdrawal penalty, so beware of that option).
Bad things do happen, even to those of us who are younger, so it makes sense to start planning now before itâ€™s too late. The 401k plan is a great option for everyone, young and old alike.
Isnâ€™t it about time you started planning, too?
Editorâ€™s Note: We would like to thank Spokane Federal Credit Union for visiting our call center in Washington and teaching our employees about the various ways to save for retirement.