How To Plan for Retirement in Your 20's and 30's Using Your 401k Plan
The earlier you start saving, the more time your money has to grow. Making smart money decisions in your 20's and 30's can make all the difference when you are ready to retire. At an age where you are fresh into your career, use the mantra of "stack now, relax later" to motivate you to grow your retirement fund.
A common way to prepare for retirement is to contribute money to an employer-sponsored 401(k) plan. Many companies offer to match your contribution up to a certain amount. If your employer offers this option, you should strive to take full advantage of this benefit.
Let's dive into a few reasons why taking advantage of a 401(k) plan early in your career will help you retire comfortably.
1. Your 401(k) may offer substantial tax advantages. Typically, your plan contribution will come out of your paycheck before income taxes are deducted (pre-taxed), which means your tax bill will be lower. Your tax bracket is usually lower in retirement, which could allow you to save on taxes when you withdraw the money.
2. Another huge advantage is that if your employer matches your contributions, this is an opportunity for you to receive "free" money towards your retirement. Employer-sponsored 401k plans are one of the fastest ways to boost your retirement savings. For example, if your company offers a dollar-for-dollar match of up to 6%, that means your company will match every dollar you put towards your 401k up to 6% of your gross pay.
3. Your 401k is a long-term personal plan for growing your savings while also giving you the chance to invest in a mix of mutual funds, stocks, and bonds.
If your employer doesn't offer a 401k plan or you are self-employed, there are still options available to help you prepare for retirement. Click here to learn how you can save for retirement without a 401k plan.