When you started your new job, you decided to sock a bit of your pay away into a company-sponsored 401(k) retirement plan. Or maybe you put it off and forgot about it. Well, one day you’ll be glad that you started contributing to one or sad that you didn’t. Check out some valuable tips on how to do it right!
Just Do It
Join your employer’s 401(k) plan at the earliest opportunity. Just do it, even if you think you might not be at the company very long. Odds are that you will be, and by not joining the plan at the outset of employment, you could lose out on valuable tax-deferred gains on funds that you could have saved and invested. Also, you could miss out on your company’s matching contributions, if applicable.
How Much? That Much?
A good place to start is to contribute 6% of your gross salary, but make sure to contribute enough to take full advantage of the company match. So, if your company will match contributions up to 5%, it would make sense to contribute at least 5%. Some financial advisers say that if you don’t have a pension, you should bump your 401(k) contribution up to 10%. Bump up your contribution each and every time you get a pay raise. That way, you won’t miss the cash, and the investment results will be way better.
Figure Out What You’ll Need
Most folks can’t imagine how much money they’ll need for retirement. That’s where this nifty 401(k) calculator comes in handy. It calculates how much you’ll have for retirement, based on your income, years until retirement, 401(k) balance and current contribution, employer match, as well as return on investment information. It will not be exact due to fluctuations on returns, salary and contributions, but it’s a good place to start because it will either scare you into saving for the future, or let you know that you’re going to be fine in your golden years.
How Do 401(k)s Work?
With a 401(k), you give them your money and they invest it for you. That’s the short story. However, if you’d like to know all about it, just take a look at this chart from HowStuffWorks.com.
If you have any tips on saving for retirement, let us know in the comment section below. Happy savings!