According to surveys, 74% of employees think a retirement plan is an important employee benefit. In reality, not as many people take advantage of the benefit their employer offers. Another survey shows 66% of working millennials have nothing saved for retirement. While it may not seem important to begin saving after starting your first job, doing so can set you up for a more comfortable financial future.
How to Save for Retirement
There may be many benefits offered when starting your first job and one of the most important benefits offered is a retirement benefit. Most times this will be in the form of a 401(k), 403(b) or 457. These are all employer-sponsored retirement plans and can only be offered through an employer (there are still ways to save if your employer does not offer a retirement benefit though). Sorting through the details of the retirement plan your company offers can be a daunting task. In fact, some find it so confusing they decide to opt out altogether. In reality, this is one of the first and most important steps in saving for your future and planning for your retirement.
Once you have your account set up, funding it is easy as all contributions to your retirement account will come out automatically through payroll deductions. There are two main types of contributions, one that goes into the retirement account before you have paid taxes on the money referred to as pre-tax contributions, and the other is one that you have already paid taxes on referred to as post-tax or Roth contributions. Not all plans will offer both so make sure you check what your company offers. There are benefits to each, and we will cover that on a different post. One of the most important features to know is whether the employer offers a match on your contributions. This is seen an as incentive for participating in the plan and can be viewed as your employer teaming with you and helping you save for your retirement. Over time, the account will grow, that is why the earlier you start saving, the more time you have for those investments to grow.
Are You Ready to Start Investing?
All plans will have different investment options so it is important to determine your risk tolerance, time horizon and individual goals before selecting investments. You can start your account with any amount and increase contributions later on, but the key is starting as soon as possible. Keep in mind it is important to maintain a long-term approach with this money – because it’s about time in the market, not timing the market.
Are you preparing to switch jobs and you have a retirement account? Stay tuned, we will have a post for that!