• mmoh-tim

The 401 K Millionaire Next Door

We all need to save for retirement. One of the best and easiest ways to do this is through a payroll deduction at work. If this benefit is offered at your company, you need to take advantage of it. The money is deducted from your paycheck, so you never see it. After making the decision to sign up for a 401 K deduction, everything becomes automatic.

But how much should you contribute. Obviously, the more money you save, the better retirement you can enjoy. If your company has a matching program, you need to take advantage of it. Typically, the company will match 50% of your contribution, up to a maximum percent of your pay (say, 6%). That means the company would put 3% in to your account over the 6% contribution. You make 50% on your money, even before putting it into an investment choice. If company does not have a matching program, I would suggest a minimum 5% contribution. At each pay raise, increase the contribution one more percent. Ultimately, you want to be saving 12 - 15% of your salary through this payroll deduction.

If you are in your 20's, and we assume annual growth of your 401K to be 6%, there is a good possibility that you could have close to $1 million nest egg in the account when you retire at 67. With money like that, start contributing today!

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