The earlier you start considering retirement, the better. Starting young gives the funds more time to build up. A 401k is an excellent way to save for retirement. It is also a good option for someone who maybe did not get to start as young as they would have liked, as they often have an employer contribution that can help build funds more quickly. The goal is to be able to live mostly, if not totally, on the interest accrued by the plan each month. The more money in the plan, the more interest will be gained.
Many companies that offer a 401k contribute funds into the employee’s account as a benefit of being an employee. Sometimes this is in the form of a flat percentage of salary, regardless of how much the employee contributes to the plan. More often, however, it is in the form of a match. For example, the company may offer an employee match of 6% of the employee’s salary. This means that if the employee contributes any amount up to 6% into the 401k, the employer will contribute that same amount. It is vitally important to take advantage of a 401k matching program if offered, as it can greatly increase retirement savings at no out of pocket cost to the employee.
One of the other benefits of a 401k plan is that the contributions are made before tax. This means that the employee’s paycheck is taxed after the contribution is deducted, therefore reducing the amount of taxes being deducted from the check. This also reduces the amount reported as income to the IRS. Often times this can decrease taxes owed at the end of the year, or increase a possible refund.
There are various possibilities for retirement plans available. A 401k is a very good option that can build quickly. It can be borrowed from, with penalties, if need be. The possible match component makes is a good option for someone getting a late start, as it will build more quickly that if the employee was the only one contributing. Just remember that the earlier contributions begin, the longer they have to build.