My 401(k)…Can I Afford It?
Contributing to your 401(k), deferring money from a paycheck to save for retirement, is a simple, convenient and important action we advise all employees to take advantage of at their workplace when offered. We recognize each person’s budget is very different. However paying yourself first and frequently is an important step in helping to secure your future. For many employees this may be their first experience with investing and often times have a difficult time deciding if they can afford to sign-up or enroll in their 401(k) plan. Dollars deferred from their paycheck will go into the 401(k) plan pre-tax. This helps in two ways. First, it reduces their taxable income. Second, the pre-tax nature of the deferrals reduces the impact that full contribution has on their paycheck.
A 1% deferral in your retirement contribution (per month):
As the above examples demonstrate, a small percentage deferral or contribution, results in an even smaller impact on a paycheck. However, the full contribution is what is invested in the 401(k) plan. This initial benefit or impact to an employee’s 401(k) plan can have a larger impact in the future assuming contributions continue to be invested and increased periodically through one’s career. The important step is to start.