The reality is that at some point most of us will retire from work yet still require income to support our basic needs and lifestyle. Yes, there will be Social Security (we hope) but that should only be part of the income source that people need in retirement as it is often not enough to make ends meet during retirement.
Back in the day, many large employer’s offered pension plans – where based on years of service you provided to the company and other factors, they would provide guaranteed payments to you in your retirement. But pension plans went the way of the typewriter in the 1980s after Congress passed the Revenue Act of 1978. Part of that law allowed employees to use payroll deductions to fund these new 401k plans (named after the section in the law) and defer taxes on those contributions. Corporations seized the opportunity to swap expensive and risky pension plans for this this cheaper way to provide a retirement benefit and pushed the 401k plan to their employees. Effectively, they placed more of the responsibility on the individual, you, to save for retirement.
Fast forward several decades, and 401k plans are now the main retirement savings vehicle for most employees. Setting aside funds from your paycheck each month, year after year, will help bolster those Social Security checks and help provide an enjoyable retirement that is well funded. Don’t delay! It can be the difference between a difficult time with great financial challenge, or one where you can focus on things that matter and enjoy life.
Time is your friend when your younger, and money put away in your 20s and 30s will exponentially increase due to the power of compund interest. Small amounts invested can have a large impact over 40+ years of working. Even if you’re in your 40s or 50s, it’s important to put money away to take care of your future self! Any amount is better than nothing.
How much should you put away? That’s a complicated question that is beyong the scope of this article series. Factors such as: age, risk tolerance, current income level, future income needs, age of expected retirement, and many other items can impact the amount you should be saving. Many people will say to start with AT LEAST contributing the amount that will get matched by your employer, so if they match part of the first 6% of your salary – start with at least 6%. Ideally, you should aim for between 10-15% if you have decent options in you 401k plan (more on how to judge if your 401k plan is good or not in the other articles in this series). You can even aim to max out the allowable amount if at all possible. Again, consult with a professional advisor if you have questions about how much to set aside, but start saving something today if you have not already.
