A penny saved is a penny earned, so the saying goes. However, why shouldn’t those saved and earned pennies accrue extra pennies the longer it stays in your pocket? Wealth management is a topic everyone should be informed on and yet 20% of retirees have no savings or have any financial planning.
While the process of financial planning or wealth management might seem intimidating to the uninitiated, setting up a 401(k) is a fairly simple process, and an effective opportunity to invest in your retirement. A 401(k) is a retirement savings plan, often provided and matched through your employer, which deducts from your paycheck before taxes, and accrues tax-free until you start making withdrawals. Employers will often provide the information and forms at the start of employment, but you can always discuss and set up your own 401(k) with a financial advisor or planner.
Studies have shown that nearly half of young legal adults haven’t even considered any sort of savings plan for their retirement, and yet the wealthiest Americans are the ones most likely to have some sort of IRA or 401(k). So, how do you go about getting yourself a 401(k)?
- Talk to your employer. Many companies offer 401(k)s as a benefit for working for them. Some will even match a percentage of whatever your contributions are each paycheck, will means that for every dollar you put in, your company will add a little bit more money to your plan. Your company will have a list of investment options to look through and choose from.
- Talk to a financial planner. Financial advisors or planners specialize in wealth management, and will be able to set up an account for you. These will normally be in cases where you’re self-employed; otherwise they may recommend a IRA (individual retirement account) which works a little differently than a 401(k).
- Decide on your contribution. A 401(k) will pull funds out of your paycheck every week, so putting away money for your future will have an impact on what you’re receiving today. So take a look at your expenses, and see what you can afford. If you’re taking advantage of your employer matching a percentage, the more you put in every week means you’ll be getting a higher amount of “free money” in your account from your company.
- Sign the paperwork, and get ready for retirement. Your investment portfolio will start accruing and saving you money tax-free until your retirement. Even if you decide to change jobs or companies, you can roll your 401(k) over to your new employer.