Don’t Let your 401(k) Pass You By
You’ve landed your first ‘real’ job. There are many things to think about now that you’re in a career oriented job. Having a regular and steady paycheck is a big deal and can be quite exciting. Many of us just want to grab hold of life and sink our teeth into all those things we’ve always wanted, but hold on.
When you get your paycheck take a moment to look at it, to understand it and most of all appreciate it. Look at your hourly wage and your gross income for the pay period. Now, take a look at your deductions. You should be familiar with them already but in case you are not, this is the money taken out of your paycheck based on taxes and corporate pay-back, such as medical and life insurance. On the bottom you will see your net pay; this is what you have to live on.
Sure, you just started working and retirement is ages away. True but there is a way to cut years off your working days and bring you to an earlier retirement. Many new to the career field can’t see past the new car, new clothing or whatever fits your trend. The thought of saving for retirement is some unobtainable goal, one or two hundred light year’s away, so why bother. Therein lies the problem. It’s not. Early retirement is very reachable.
Most companies offer a 401(k). A 401(k) is a company sponsored savings plan that their employees can enroll in and save money before taxes. What this means is that the money is removed off the top, meaning you can save more. Most companies will chip in up to 50% of what you commit up to a certain percentage, average being 6%. This is to say if you save 6% of your paycheck every pay period your company will add 3% to this, leaving you at a respectable savings rate of 9%.
Let’s say you gross $500.00 per week and base the taxes (no corporate pay-backs) on the average 2011 tax table for a single person at 15%. In this case you will pay $75.00 in taxes. Leaving you a net of $425.00 take home. If you were to save 6%, then your taxable income would be reduced to $470.00 (remember deducted before taxes). You pay $70.50 in taxes leaving your net at $399.50.
You’ve saved $30.00 and reduced your net by $25.50. Your company will match 3% or $15.00, so in total you save $45.00 per pay period, netting you a $19.50 profit. Remember too, your money will double every 7 years. Based on this scenario, without an increase in pay and being at age 25, by age 55 you will have saved $301,860.00 (est.).
Get with your Human Resource Manager or Benefits Department.
About Spyder Collins As the writing leg of the three-headed beast from Razor Thin Studios, Spyder has been making the rounds about the internet. With a passion for creative writing, which he explores in his blogs, he brings a unique flavor. A blogger by trade with appearances in some pretty sweet spots but Spyder may have found his true home with TSB.