Saving for your future isn’t easy. College didn’t teach us anything, employers don’t provide any training, and most people older than us rarely understand the in’s and outs of investing. To make matters worse millennials are to scared to invest with a huge amount of student loan debt. But by taking advantage of the two most common retirement accounts you can set yourself up for a prosperous future. A future where you aren’t stuck working part time to pay the bills.
If you’ve decided to start saving for your future great job, it’s not easy to save for an event that could be 25-45 years away. But the earlier you start the more you will be rewarded. Unfortunately starting to save isn’t enough, you have to choose the right ways to invest. Savings accounts .001% interest won’t get you the lavish future you want. Instead you need to take advantage of Roth IRA’s and your employee sponsored 401K or 403B. Here’s why you should invest in both to have the most money possible for your upcoming retirement.
Top 3 Reasons to Invest in Your 401K
1. Your employer will typically contribute or match a portion of your contribution. This is essentially its free money from your employer. For example my employer matches up to $1,000/year, wouldn’t mind an increase! So I make sure to invest at least $1,000 each year so they contribute $1,000 as well. My $1,000 is now $2,000, doubled my money no problem. Other employers match a percentage of your salary instead of fixed amount. Usually they will match up to six percent of your contributions.
2. Your 401K contributions happen before you get taxed (pre-tax). You will be investing more for the same percentage than a post tax contribution.
- For example, if you invest 15% of your $2,000 paycheck then you will contribute $300 pre tax dollars. If you invested 15% after taxes it would be closer to the $190-$230 range (depending on your tax situation). BUT you will be taxed in the future when you begin to withdraw after 59 1/2 years old.
3. The last reason is that it will be AUTOMATICALLY deducted from your paycheck. Automatic contributions ensure you won’t spend all your paycheck before investing. You will pay yourself first! Listen to Warren Buffet = Net Worth of 66.7 Billion.