Financial Smarties: Save for Retirement

Enrolling in a 401k may be one of the wisest financial decisions you make and it is extremely important to start saving as early as you can.

What is a 401k?

A 401k is a retirement savings plan sponsored by an employer.  It is a way to offer employees a chance to save part of their paycheck (many times pre-tax dollars) for their retirement savings.  Employees have control over the funds invested.  Over time, through saving and compounding earnings, the account grows to the nest egg needed during retirement years.

Advantages of a 401k

The 401k offers many advantages, such as creating an easy and disciplined way to save, possible tax benefits, and a wider array in investment choices without fees, or lower fees.  But one of the best benefits is that some employers offer to match up to a certain percent of the amount saved.  If you don’t take advantage, it’s like leaving free money on the table.

Why You Shouldn’t Wait

Dollars saved earlier on are worth more than dollars saved closer to retirement.  This is the value of compounding interest/returns. Here is a great calculator that can show you how much money you can save over time using compound interest.

Leave It In There 

Most 401k programs do offer an opportunity for savers to borrow from their 401k, but it is not advisable. Here’s why:

• If you borrow against your 401k, it’s not earning and compounding. 

• You are also not saving, because you are using your savings to pay back your 401k loan. 

• If you don’t pay it back, you will be subject to a penalty for early withdrawal and taxed on the money taken out. 

It’s never too early to start saving for retirement and if you have the opportunity to invest in a 401k, take advantage.