Why haven’t you setup a 401k or retirement account yet?

From my column today on insidestl.com

60% of people offered 401k plans by their employer currently participate and contribute money towards their retirement. 401k plans are simply retirement plans here in the US, the 401k stands for the IRS code (403b for example is for state employees or hospital workers) on this type of retirement plan. What I’m going to talk about below is why those other 40% of people haven’t participated, what employers are doing to increase the participation rate, and why you would be a fool to not get in on the action. I’ll also tell you why you’re making this entire retirement planning and investing concept much more difficult that it really is and show you how you can setup your own plan in less than 10 minutes.

Just a couple of short years ago only slightly above 30% of people participated in their 401k plans, now nearly 60% do. Participation rates in company sponsored retirement plans have seen significant growth for one reason, automatic enrollment.

Why aren’t you enrolled in your companies’ 401k plan? Chances are there wasn’t automatic enrollment when you joined your company or maybe they didn’t even offer a 401k. So what’s keeping you from getting enrolled now? My guess is you think it’s either too complicated and you have no clue and don’t want to look stupid in asking for help or letting others know you’re currently not already enrolled or you don’t want more money being taken out of your check. The fact is, the process is simple, and you’re only stupid if you don’t get started now. Most all companies match what money you put in up to a certain percent, so you’re giving away free money! For example, if I contribute 5% of my pay, my company matches it!

It only takes about 5 minutes to fill out the required paperwork and another 5 minutes to make your selections in how you want your money invested. Moreover, it’s more important to just get started than how you choose to invest your money. Most company plans only have about 15 choices to invest your money in anyway; I will show you in my next article how to choose these. The most important thing to understand is that you must get started now, if you wait a year or even two that means far less money at retirement because of compound interest. For example, if I start investing today 5% of my pay, and my coworker making the same money waits one year, they would have to contribute more of their money than me and still wouldn’t be able to catch me. I will explain compound interest in future articles too. Moreover, if I invest 5% of my pay pre-tax, I’m not going to see my take home pay being lowered by 5%, it will only be about 3-4% because that 5% is not taxed when invested.

Retirement planning and investing is really simple if you want it to be, it’s simply getting started that’s most important. You don’t have to know which stocks to invest in, how to setup a retirement plan or anything to get a head start on your retirement, you just have to go to HR, get that form and fill it out. My next article will talk more specifically about how to select different investments available in your 401k and how to start a basic retirement plan. In addition, I’ll provide some options for folks who aren’t offered a retirement plan through their work start a retirement account on their own.

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