Save Now, Retire Rich

Here's an article from Kiplinger's that gives a basic 401k primer. It's stuff we've covered several times already here at FMF, so I won't mention most of it. However, the piece does mention what a great tool the 401k is at helping to grow your net worth and how it can help you retire rich. I know we've covered that topic as well, but I never get tired of it. ;-) So, here we go again:

With 30 or 40 years to retirement, the big day seems a ways off. But if you start saving little by little now, you could retire with a million or two in your pocket.

Say a 25-year-old socks away $200 a month in a 401(k) earning an average 10% annually. By the time she turns 65, she'll have about $1.3 million saved. If her employer offers a 50-cent match for every dollar she contributes, her stash grows to nearly $2 million.

The sooner you start, the more your money will grow over time. If the worker in our example waits until age 32 to start planning for retirement, her savings by age 65 would be half of what she'd have earned if she'd started seven years earlier.

There's an old saying that goes, "The best time to plant an oak tree is 20 years ago. The second best time is today."

The same holds true with 401k/IRA investing. If you've already missed 5, 10, or 15 years of putting money into such a retirement vehicle, that's water under the bridge -- you can't do anything about it. Don't fret about it and let the issue keep you from taking action. Instead, start saving today. In 15, 20, or 25 years when you retire, you'll really be glad you did!

Comments

[Dus10]

That is a great post. And, if you have children, and your own business, consider hiring your children to help with business tasks. If you pay your child just $4000 a year, it lowers your total profit (and tax liability). In addition, your children are less expensive to employ because you do not have to get involved in FICA (Social Security and Medicare) and FUTA (Unemployment). Further, your children do not have to pay any taxes on that money. Since it is earned income, they can sock it away in a Roth IRA.

My daughter will be eight this year, and I plan on getting her started. If she does this for the next ten years, she will have contributed $40,000 when she and her friends are just starting college. Plus, she can withdrawal the contributions to pay for her first home, and she will still have the earnings in the IRA. Plus, investment limits reach $5000 per year in 2008, so that number will go up even higher.

[Erik]

Invest invest invest, no matter your age. It can't be stressed enough. I actually just posted on the differences and common questions between the 3 main retirement accounts. (Spurred on by all the questions I hear my co-workers ask)

This was a nice post to make people realize, YOU NEED TO START NOW. Even if it's just a little, smoke one less pack of cigarettes a week (you should just quit but I'm not your mother.)

I like the IRA, if you can hit it big with it when you retire that gross earnings column on your monthly income will be the same or fairly close to your net income. How cool will that be, I hate to get a paycheck with all that tax out of it.

E