Let’s Get Basic: Your 401K
Your thirties are a crazy time–you’re supposed to be all grown up but you’re often just getting your footing. Maybe you’ve finally gotten a handle on your student loans and landed a job that finally pays the bills and allows you to put a little way for a rainy day. Now you have to worry about retirement? The answer is yes, but fear not! The best time to start is today because time is your ultimate ally.
If you want kick-start your retirement savings, you can do it with just a few simple moves.
What is a 401K?
In short, a 401K is a benefit that many employers offer to ensure employees have money to retire on (now that pensions are becoming a thing of the past). The employee (you) chooses the amount automatically taken out of each paycheck and invested in your 401k account.
Your 401K is made up of investments, usually stocks, bonds, and funds. Often times, you can pick these investments yourself, depending on when you’re going to retire (that’s called your time horizon). The years you’ll be saving for retirement is a good indicator of whether you should choose to be “aggressive” or “conservative.” Don’t worry, we’ll talk about risk in later posts.
What are the benefits of a 401k?
401 tax benefits are pretty cool. Besides helping you automate your money toward your retirement, they can offer:
Employer match
Tax benefits
Shelter from creditors
Why take advantage of 401k Match?
Many employers offer to match employee contributions, either dollar for dollar or 50 cents to the dollar, up to a set limit. I like how the site Kasasa explains this: “So, for example, say you make $100,000 a year (#baller) and your employer offers a 401k matching of 50% up to the first 6% you elect to contribute. If you contribute 6% of your annual earnings ($6,000), your employer would contribute an additional 50% of that amount. So, $3,000 free dollars.”
To make it simpler, if your company matches up to 3% of what you contribute, they’ll match it. Over time, that can make a big difference to how much money you’ll have by the time you’re ready to retire.