Ellen had just settled into the cozy corner office that came with her new position as a marketing manager. Her desk was already littered with task lists, campaign proposals, marketing reports and meet-and-greet lunch invitations. The phone system blinked with a steady pulse, reminding her of the tutorial she had yet to complete. On her desk, beside a stack of market research reports, sat the 401(k) enrollment packet she received from human resources. As each day brought its own set of challenges, she’d murmur to herself, “I’ll get to that later.” But days turned to months, and “later” somehow never managed to become now.
This is an all-too-familiar story, and one that carries with it the weight of lost opportunity. Investing in a company retirement plan is more than one more box to check during new employee onboarding — it’s a step toward securing your financial future. The beauty of a 401(k) lies in its compounding growth, where each dollar invested can grow over time, building upon itself like a snowball rolling downhill. In a traditional 401(k), your earnings are tax-deferred, meaning you won’t pay taxes on them until you start taking withdrawals, or required minimum distributions, in retirement (hopefully at a lower tax rate). Moreover, many employers offer matching contributions as an incentive. By delaying enrollment, you’re missing out on those funds. Here are tips to get the most out of your retirement benefit.
Start early. When it comes to your employer-sponsored retirement plan, the old adage “the early bird gets the worm” is apropos. The key is to start early, allowing the benefit of compound growth to do its work over a longer period. If you need assistance getting started, reach out to your human resources department.
Regularly increase contributions. As your life and career progress, it’s important to periodically increase your contributions. Even a small increment can make a significant difference over decades of employment. If your company offers it, consider signing up for auto-escalation, which increases your contributions by a small amount on a regular basis.
Review asset allocations. It’s essential to review all your investments at least annually to ensure they continue to align with your risk tolerance and retirement goals. Investment diversification — or including a range of types of investments in your portfolio — helps mitigate market volatility risks. If you feel intimidated about selecting investments on your own, you may want to consider a target date fund, or TDF, that automatically adjusts your investment mix to decrease risk as you approach retirement.
Max out your match. An employer match in your 401(k) is a powerful tool for enhancing your retirement savings. It’s essentially free money added directly to your contributions, typically up to a certain percentage of your salary. For instance, if your employer offers a 50% match on up to 6% of your salary, and you earn $50,000 a year, contributing 6% ($3,000) means your employer will add an extra $1,500. But if you contributed just 2% to 3%, you wouldn’t receive that full amount. To fully leverage the power of compounding interest and maximize your retirement savings, it’s highly beneficial to contribute at least enough to qualify for the full employer match. This strategy is where the true magic of compounding can work wonders, with the potential to grow your retirement fund substantially over time.
Take Hold of Your Financial Future
It’s never too late to start reaping the rewards of prudent retirement planning. The journey to retirement is a marathon, not a sprint. Every step counts, which is why an automated savings process such as a 401(k) can be so valuable. If you’ve let your enrollment packet gather dust, consider this a gentle nudge toward a brighter financial future. If you need help, reach out to your HR department or a qualified Financial Professional. Empower yourself by taking that critical first step. Then contribute and manage your employer-sponsored retirement plan to its fullest potential. Your future self will thank you for your foresight and diligence.