Yes, it’s correctly spelled 401(k). We just wanted to get a discussion about saving for retirement early on in our alphabet.
People ask us if they should hold off making contributions into a 401(k), and instead, divert that money to reducing debt. If your objective is to retire at a certain age, the amount you will need to fund a comfortable and secure retirement will be the same regardless of when you start saving for retirement. The longer you delay investing for retirement, the greater the amount you will have to save each year to accumulate the necessary funds to retire. Let’s repeat that: the longer you delay, the more you will have to save later on.
The challenge of accumulating enough money to retire comfortably is so great, we think it extremely important to make a 401(k) contribution. Yes, we know it’s one more financial ball you will be juggling. We’re all about you acquiring good financial habits: 401(k) participation is one of them.
If your employer’s 401(k) plan offers a matching contribution, you MUST take advantage of it. (It’s part of your compensation package!) Until you have your debt and discretionary spending under control, you should contribute at least the minimum amount of your compensation that earns you the maximum match (generally somewhere between 3% and 8%).
If that’s too big a percentage, do what you can – even if it’s just $10 or $25 each paycheck. As your financial health improves, and as you learn first-hand about the unique advantages a 401(k) offers, we think you will find the motivation to increase your 401(k) contributions.
In a perfect world, your minimum target for contributions to a retirement plan should be 15% of your compensation from all sources. Yes, this means counting towards that 15% the contributions your employer makes to the plan. However, the ideal contribution to your 401(k) from your paycheck is the maximum amount the IRS permits.
Saving for retirement is a big topic, one deserving of your attention. We suggest you watch these videos from the CapitalYOU™ library.