Why You Should Invest In a 401(k) at Your First Job

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If your first job is with a company that offers you a 401(k) plan, congratulations! A solid 401(k) plan is an invaluable asset when it comes to saving for your retirement. But just having access to a 401(k) plan doesn’t guarantee a prosperous retirement. You’ll have to take the steps to invest in the plan in a way that maximizes all of its potential benefits. Here’s a look at the main reasons why you should invest in a 401(k) at your first job.

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Saving Early Means You Don’t Have To Save as Much

Simple math explains why you should invest in your 401(k) plan as soon as you can. Compound interest is nothing short of miraculous, but it can only work that magic if you give it time. Investing just $200 per month starting at age 21 will net you a whopping $1,895,502 by age 65, if you earn 10% per year. But look how much more you’d have to contribute monthly if you wait:

  • At age 25, you’ll need about $300 per month to reach $1.8 million+
  • At age 30, you’ll need approximately $500 per month
  • At age 40, you’ll need approximately $1,400 per month
  • At age 45, you’ll need approximately $2,400 per month 
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The bottom line is that the earlier you start kicking in to your 401(k) plan, the less cash you’ll have to contribute to your plan in the future to reach your retirement goals. Although it may be an adjustment when you are just starting out to kick in $200 to a retirement plan, imagine how much easier that will be than having to contribute $2,400 or more per month as you get older.

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You Can Get Free Money With Your Company Match

Most large companies offering 401(k) plans provide a company match, and this can be the biggest perk of all when it comes to your retirement savings plan. Typically, companies will match 100% of a portion of your contribution, often up to a limit of 3% to 6% of your salary.

Imagine that you earn $50,000 and contribute 6%, or $3,000, annually to your 401(k) plan. If your company matches 100% of contributions up to 6% of income, it will deposit an additional $3,000 into your account.

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In other words, with no effort or risk-taking on your part, you’ll double your 401(k) contribution every year and begin earning interest on that money as well as your own contributions. If you start young enough, you could end up with literally hundreds of thousands of dollars in company matching money by the time you retire.

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You’ll Get in the Habit of Saving

The secret that many people don’t know about saving in a 401(k) plan is that it doesn’t take magic or good luck to end up with a high six- or seven-digit portfolio by the time you retire. You simply need to get in the habit of saving early and often. A 401(k) plan helps make this easier through automatic deductions from your paycheck. If you start making these automatic contributions as soon as you start your first job, you’ll quickly get used to the habit of saving. This alone could be the single most important key to achieving a healthy 401(k) balance and a happy retirement. 

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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