What is a 401K and should I apply for one in my first job?
As I prepare to go into my career, I know insurances and benefits are a huge part of accepting a job. I have never really understood what a 401K is and if I need to apply for it! #401k #insurance #interviews #job-applications
A 401k is a program offered by some employers that allows you to save for retirement. Many times your employer will also contribute to the account. This type of investment account can have some nice tax advantages also.
I highly recommend starting early when saving for retirement. We can't be 100% sure Social Security will be available when we retire. The money you put in now will have the advantage of time. In the long term your money will most likely grow. If you invest $1,000 at the age of 22 it could be worth over $52,000 by the time you hit 68. (This is assuming a 9% investment return over 46 years)
Time value of money is on your side when you are young! Invest what you can and watch it GROW!
There are many future value calculators out there online. Check them out. You'll see just how powerful the time value of money is.
There is also a simple investment rule of thumb out there called the Rule of 72. This basically says to divide 72 by the rate of return on your investments to see how long it will take to double.
So let's say you have a 9% rate of return. Your investment will double roughly every 8 years.
Chris recommends the following next steps:
Pablo recommends the following next steps:
A 401k is a pre-tax retirement investment. It allows you to prepare for retirement and most companies will match the first 3 to 6 percent- free money. You can contribute up to 18.5 thousand annually and my recommendation is that you start contributing your first check. How much you contribute is up to you but make sure you know your company matching rules as you want to, at a minimum, contribute enough to get the entire company match. You will never regret saving for your retirement and you will be amazed at how it eventually grows. Good luck!!
A 401k is a retirement savings vehicle that can be used to save for your late stage retirement. You can also use it as a "tax advantaged" account to assist in lowering your overall tax burden through sending pre tax dollars to your 401k during your high earning years. I highly recommend investing through a 401k. In 2021, the limit for contribution to the 401k has increased to $20,500. I would recommend that as you are able to, contribute to the maximum limit allowed to allow compound interest to play in your favor. Remember, if you decide to withdraw the funds early, you will be subject to a 10% penalty alongside of any capital gains taxes on the gains of your investment. For that reason, I also recommend investing in a taxable brokerage account as you are able in the event you need access to funds not dedicated to retirement. I hope this helps to answer your question. Good Luck!
A simple answer regarding what is a 401k:
A retirement savings plan that you and your employer contribute in. (Think of this as a long-term investment but two people invest in this. You and your employer)
Usually, your employer will match your contribution. You should always try to max your contribution as early as possible.
Please use a calculator to help you navigate through this. There are also a ton of YouTube videos explaining the math behind the contributions and the Tax advantages.
Good luck to you!
Ibraheem recommends the following next steps:
As others have mentioned, 401k is a program that allows you to save for your golden years so that you have a nest egg to retire on. The sooner you start the quicker your nest egg grows. Depending on your income and circumstances, make sure to save/put in the minimum to ensure you get the entire company match.
While you may find it hard to think about putting money into your 401K, I can't stress enough how powerful it can be to secure your future. There are plenty of calculators out there to help you evaluate how to best save money for retirement - check out www.calculator.net for one example. As you work through different scenarios, one thing becomes VERY clear, starting early in your career is the key....you will find that if you wait to start later in life you will end up having to save much more money each year to get the same outcome.
What seems like a sacrifice when you are young will translate to SO MUCH MORE FLEXIBILITY for you when you are older.....trust me!