PREPARING FOR RETIREMENT || LINKS

A 401(k) Plan can be a fantastic tool for retirement savings. In a typical 401(k) Plan, your employer contributes a portion of your before-tax salary to the Plan, and may also make a matching contribution.

Should you participate in a 401(k)? Could you do better investing on your own outside of a 401(k)? Let's consider. First, 401(k) money is contributed on a before-tax basis. The $1.00 you put in a 401(k) would shrink to about 70¢, depending on your tax bracket, if you did not put it in a 401(k). Second, many 401(k)s provide an employer matching contribution. If your employer match is 25¢ for each $1.00 you contribute, that is equivalent to an immediate 25% return (the employer match is subject to a vesting schedule, of course). Third, 401(k) contributions are also regular and automatic, happening for you every paycheck. For many people, this feature alone ensures that their retirement funds are accumulating in a better manner than if they had to actively invest the money themselves after cashing each paycheck.

Life expectancies continue to rise, making retirement savings more crucial than ever. Your grandparents worked and saved 45 years to retire for 5 years; your parents worked and saved 45 years to retire for 10 years. You may work and save 45 years to retire for 25 years! Your 401(k) account could someday be your largest asset, and it should an integral piece of your retirement planning.

 
  © 2007 Brooks Hamilton & Partners