Top Ten Reasons New, Younger Employees Should Join Their 401(k) Plan

My daughter recently graduated from college and found a good job with benefits in her area of interest. I was so proud of her!  As a mother, I still felt it was important to sit her down and explain the importance of saving for retirement.  It may seem irrelevant to the kids of today who are more consumed with which new iPhone to buy, but please know this…retirement comes for everyone one day. How do you want to spend it?  These are the Top 10 Reasons to begin saving now!

1. It’s Basically Effortless–  Your employer will deduct your contribution pre–tax, which encourages enrollment and after a month, believe me you won’t even miss it!  Many employers will also contribute to your retirement fund based on what you save.
2. Tax Breaks!- Hello, when do we ever get a break from the IRS? Well, twice to be exact!  First, when you save in a 401(k), your contributions are tax deductible.  Secondly, the money you contribute is not counted toward your gross salary. So, instead of saving for the new iPhone 6, you can put away some money to travel and live a more comfortable life after retirement.
3. It’s FREE MONEY!  Yes FREE MONEY!- Usually, nothing in this world is free.  However, over 75% of defined contribution plans have some type of matching program.  For example, if you save 6%, your employer may throw in 3% as well.  So by saving for retirement, which you should do anyway, you’re effectively giving yourself a raise!
4. Dollar Cost Averaging- You can make money without breaking your back by using the same amount of money to buy stock and mutual funds over time.  When prices are higher you’ll buy fewer shares, but when prices are lower you’ll buy more shares.  This lowers the average cost of all shares.
5. A Professionally Managed, Diversified Portfolio- Having a professional manage your portfolio helps relieve the burdens of ‘picking stocks’ and the education provided will help guide you with your investment strategies throughout your career.
6. Your Money Stays With You- If you change jobs, you can take your money with you.  That money is yours and goes wherever you do!
7. Loans And Hardship Withdrawals- If an extraordinary event arises (e.g. buying a home, getting married, etc.) and you need a little help, you may have access to  your hard earned/saved/invested money through a loan. And with that loan, you actually pay yourself back with interest!  Availability varies from plan-to-plan, so check your Summary Plan Description.  Please note that regular loans for “quick cash” are NOT encouraged under these plans.
8. Maximizes Savings- Given current IRS rules, you can put more into a 401K than into an Individual Retirement Account (IRA).
9. Out Of Sight, Out Of Mind- With a difficult job market and the cost of living today, almost 59% of people spend their entire monthly paycheck; some due to a tough job market and others simply have trouble controlling their spending.   A retirement account can take the hassle and worry out of planning and plotting how much you can save each month.  The money is “saved” before the check is in your hands.  What you never had can’t be spent, right?  And of course you can adjust the amount of your contributions according to your financial needs.
10. Social Security May Not Be Around-  With the current state of Social Security funding, saving on your own is the best way to ensure you can retire with dignity.   And enrolling in the plan early is the best way to maximize your saving potential over your working career.

As a parent it’s easy to say “Start saving now”. But, explaining the value of saving to your children is easier with this Top 10 list and following this course will help your kids earn valuable, financial dividends down the road.