Saving for retirement seems like a long way off. But the truth of the matter is, you will retire one day and you will have to provide for yourself and possibly others. The more you prepare and start to save, the better off you will be. If you start young, you could even have million dollars saved up by the time you retire. It can be confusing to get started, and a new survey from Charles Schwab shows that you are not alone in your confusion.
1,000 people with 401(k) plans were surveyed and here are the results:
- 9 out of 10 are relying on themselves to fund their retirement.
- While most recognize the importance of a 401(k), they lack confidence in effectively managing their savings.
- Over 50% find that 401(k)’s are more confusing than their health care benefits.
- About 1/3 feel stressed when choosing their 401(k) investment plan.
What is a 401(k)?
The Tax Reform Act was passed by Congress in 1978, and within the Internal Revenue Code the act was found under section 401, paragraph (k). Americans needed a boost of motivation in order to save for retirement and Congress wanted to give them an easy way to do that. Through your employer, a defined contribution plan invests money into a retirement savings accounts or your 401(k), this in turn creates a lower taxable income, and a win/win situation. Best of all you can avoid the stress of taking money out each paycheck to set aside, the 401(k) plan accumulates without you having to worry about deposits and most importantly when you retire the money is already there waiting for you.
Get started as soon as you can.
The money will be waiting for a very long time but a retirement savings plan is one thing that should not get put on the bottom of your to-do list. If your employer has a 401(k) plan option, take advantage of it early. Companies will typically match up to a certain amount that you contribute which is a great benefit. So if you start investing right out of college you could potentially have one to two million dollars in your retirement plan. Sounds too good to be true, right? Wrong, 401(k) plans are truly what you gain from working and investing.
It is extremely important to review the information that is given to you by your employer. You will probably get a packet of material to read through including websites that offer more facts and figures. You don’t need to read every word but make sure you have a good idea of the offerings and investments. Figure out how much you want to contribute, how much your employer is contributing and where to invest. There are lots of options: mutual funds, stocks, bonds, money markets, etc. Do your research and don’t take the responsibility lightly, because in the end it all benefits you.
Watch Manage Your 401(k) in 1 Minute and get some tips to get started.