Adulting 101: Contributing to a 401k

By Ashley Wirgau on June, 20 2019
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Ashley Wirgau

Adulting…as if it isn’t hard enough on its own. As if we don’t have enough to fret about with the perpetual climbing of ladders, the pesky glass ceilings, the whole yay-let’s-get-married-wait-why-did-we-get-married moment…okay, moments. And those darn Jones’s – how do they keep getting cooler and cooler stuff? We’ll never be able to keep up.

Then, on top of all that, we have to deal with the never-ending line of financial considerations: which health plan to choose, how much to withhold from weekly paychecks, the complicated world of life insurance policies, the rent vs. own conundrum, and the biggest and possibly most confusing, how much of that hard-earned money to contribute to a 401(k). This final consideration towers above all others as it affects our livelihoods 30, 40, even 50 years down the road.

We are supposed to make decisions in our early twenties that will have a direct and significant impact on how comfortably we are able to live in our sixties and seventies. Take a moment and imagine the average 22-year-old (and if you are 22, let’s just get real honest with ourselves for a second). At that age, most people can barely select a well-rounded box of cereal. Can they really make sound investment choices?

Unfortunately, the answer is often “no,” so instead of getting a kickstart on retirement early in their careers when the beauty of time and compound interest is on their side, these newbie adults play catch-up in their forties and fifties when expenses are much higher. In middle age, the demands of home-ownership and children (especially children entering college) make those diverted dollars all the more painful.

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So how does one buckle down and contribute the recommended 10-15% of their current income to invest in their retirement? How does one stick to a plan today to avoid the “catch-up” game later on when the kids’ college tuition, roof repairs and all other modes of general household decay start sucking at the savings account? Here are four sure-fire incentives to get you padding that retirement years before that first gray hair or dormitory deposit.

1. Learn What Sets a 401(k) Plan Apart

To fully understand why you should contribute to a 401(k), it’s kind of important that you understand what it actually is. There are various ways to save for retirement, so why choose this particular type of account? Easy – with this employer-sponsored retirement option, the money you and/or your employer diverts to the account (up to the maximum annual allotment) is untaxed. With a 401(k) plan, the invested funds and any potential gains are not taxed until the time at which they are withdrawn…so let’s all cross our fingers that when it’s time to cash out, the tax rate hits an all-time low.

2. Do It For Your Future (Tired) Self

We all have different ideas about how our sunset years should look. Some of us want to travel the world. Others want to settle down in a cozy spot with friendly neighbors and scheduled coffee hours, but regardless of how we envision these golden years unfolding, most of us can agree that we’d appreciate the freedom to leave that 9-5 far behind. That truth seems relatively universal, so use it as motivation to reserve that 10-15% of today’s income for tomorrow. Your future tired self will thank you.

3. Punch the Numbers

One of the most difficult things to grasp is the sheer amount of money that will be required to survive once the weekly paychecks stop coming. Sometimes simply plugging in the numbers and taking a good long look at the result is enough to get you serious about starting to save, and for those of you fortunate enough to have an employer contribution match, make sure to take full advantage of this free gift as it gives you a huge leg up in the race to retirement.

Nerdwallet’s handy retirement calculator provides a rough idea of where you stand based on your current income, savings and expected date of retirement. Don’t stop there, though. It’s important to keep crunching those digits to then determine how much to invest in a 401(k) plan specifically. Use the more detailed 401k calculator to see what increasing your savings can do for future you.

4. Consult a Financial Adviser…Now

Finally, we need to debunk a common misconception: only people with money should meet with financial advisers. You do not, in fact, have to have boat loads or even tiny little teacups full of money in order to talk to a professional about your finances. It actually makes sense to sit down for a consultation prior to plunking funds into any type of account. This ensures you are making the very best, most informed decisions for your dough. It also serves as a shot of encouragement to get started. Additionally, a quick convo with a financial adviser will help you avoid unnecessary fees or paperwork-heavy transfers down the road when you realize your initial money moves were more like mistakes.

It’s important to have solid motivation when trying to stick to any savings goals, and few savings goals are as essential as one’s retirement. By making a point of envisioning your future self and the life you hope to have, you can use your current surplus to ensure your financial needs will be met far into the future. Adulting may not be easy, but if you make the right decisions today, you can make certain your retirement will be.