We know how 401(k)’s work. Money is pulled out of your paycheck before it ever lands in your bank account and, if you’re lucky, your company matches your contribution up to a certain percent and the money grows tax deferred in the account until retirement.
The 401(k), for most people, has become the primary savings tool for creating a retirement nest egg. It is a great option, but many people still feel saving for retirement is difficult and hardly simple. According to our Wells Fargo middle class study released in October of this year (during National Save for Retirement week), more than two thirds of Americans said that “saving for Retirement is harder” than they anticipated.There’s good news:your 401(k) provides you with an an easy way to save; the hardest part is getting started and staying on-track amidst day-to-day financial priorities. And I get it, just because it’s available to you doesn’t mean it’s simple. But it can be; if you know the steps you should take, and see the difference it makes once you’ve started.
There’s more good news.
In our recent Wells Fargo/Gallup Investor and Retirement Optimism Index, non-retired investors say that offering a retirement savings plan, such as a 401(k), is the most important benefit their employer provides (61%), besides health insurance, beating out paid time off, life insurance and stock options.
Why is this good news? Of those polled, more than six in 10 (69%) non-retired investors have access to an employer-sponsored 401(k) plan, and 96% of those with access are actively contributing to their plan. That’s something to celebrate.And here’s more; we also learned that of non-retired investors:
- 91% are currently saving
- 86% percent say that their employer matches some part of their contributions, and 81% say this is “very important” in helping to save for retirement
- 7 in 10 believe they could save more and the median additional amount they estimate they could save each month is $250.
So if you’re one of the many that has access to a 401(k), and you’re taking advantage of it, be proud. It’s one of the most important tools you have to help you reach your retirement goals. If you haven’t started saving yet, don’t worry; it’s never too late. Just commit to creating a plan to help you achieve your goals and then take small steps to achieve them.
Moral of the story: if you have a 401(k) available to you at work, take advantage of it. If you’re not sure you can afford to save more, discover how little changes to your spending, ones that are realistic to your budget, can have a big impact on how much you save for retirement.
Withdrawals are subject to ordinary income tax and may be subject to a federal 10% penalty if taken prior to age 59.