Posted by
Rebecca, Apple FCU
People often ask, “When should I begin contributing to my 401(k) retirement fund?”
To this question I always say, “As soon as you can.”
When building your nest egg for retirement, it’s never too soon to begin contributing. Setting the habit of contributing early on will help you establish the routine for your career(s). Aside from the fact that you’re saving (which is truly excellent), you also are not taxed (at least not now) on that money you set aside in this fund. And the best part, because of the power of compounding interest, your money will grow and grow and grow.
For instance, how much do you think a 21-year old with no savings would have to put away monthly to be a millionaire by the age of 65 (assuming they’re earning the stock market’s annual historical average of 10%)? $1000? $2500? WAY TOO HIGH!! It’s only $105.51. That’s amazing! Use this calculator to see how much you could potentially earn: http://www.investopedia.com/calculator/MillionaireCal.aspx?viewed=1.
Now, how do you get on the road to investing? Start at your job! Most employers offer to match a certain percentage of your retirement contribution – the nationwide average is 3%, but yours may be less or more. So, if contribute 3%, you’re going to immediately experience 100% growth when your company matches that 3% - there’s no better investment than that for so little effort. That said, you can contribute more than the match - up to 10% is recommended by financial advisors. Beyond that, you’re better to diversify your portfolio (yes, you now have a portfolio, oooh, aaahh), so all of your eggs aren’t in one basket.
However, there’s one important thing to remember when investing in your retirement plan. It’s for r-e-t-i-r-e-m-e-n-t! You can’t access that money until you’re age 59½ (is the ½ really that important?) without suffering a 10% withdrawal penalty - OUCH. And remember before I said that 401k money isn’t taxed initially? Well if you withdraw early, you owe those taxes immediately – DOUBLE OUCH.
The take-away? Ideally, you should aim to contribute at least the amount that your company will match and if you can afford to, try contributing a little more. But remember, don’t commit to putting away more than your budget can handle! You can always add more later as your salary increases, but the point is to at least get started. Just $105 a month can really add up. See you in Millionaires Row!
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Posted by Kanda, Apple FCU
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