Planning for retirement can be stressful when there are so many options. You hear terms all the time like 401(k) and IRA, but many people have no idea what those things are and whether using them is even a good idea. If you're trying to decide if paying into a 401(k) retirement account is a good idea, you should know these reasons why it's one of the best ways to go.
No Work Involved
It's easier to save money if you never see it. If you have to write checks for an account every paycheck, chances are, you're not going to do it. It's too easy to put this task off until the money is spent or to find fun things to spend your money on. When you start your 401(k), you'll fill out paperwork with your employer that details how much you want to have deducted from your paycheck. Every time you get paid, that money will go straight into your 401(k) so it doesn't get spent.
No one likes to pass up free money. Many employers match 401(k) contributions at a specific percentage rate. For example, your employer might match 70% of your contribution. Therefore, if you put in $100 each paycheck, your employer will add $70, which means you are adding $170 to your 401(k) each paycheck. The number of employers who match dollar for dollar is up to 42%, so many people have the opportunity to double their money every time they add to their 401(k). Many employers have stipulations for meeting the guidelines. For example, you might have to save at least 6% of your paycheck to qualify for employer matching.
You Can Change Jobs
Pensions and other work-related retirement plans are fantastic. The only problem with that sort of plan is that you can't get your pension if you leave your employer for a new job. If something happens and you have to work somewhere else, you have no retirement money if you were relying on having your pension. If you go to a new job that offers a pension, your clock starts over. You might end up having to work past your retirement age to qualify for your pension, depending on how old you are when you change jobs. With a 401(k), your retirement plan follows you. You can be unemployed for a while or go into a completely different line of work and never lose your contributions.
Having a 401(k) is a great way to plan for retirement. You have an opportunity to obtain free money, depending on your employer, and you never lose your retirement benefits. If you don't have a 401(k), it's important to start one as soon as possible.
For more information about 401(k) investments, talk to a professional such as your employer's HR director.