Many of our readers are “Millennials” and people who are even younger than that. For people in this age group, everybody knows that the economy they entered in their young adulthood was not the best. Some Millennials missed out on the career they thought they’d begin just as soon as they graduated college. Today’s job market is very different than the one in 2008 and 2009. Many of the factors that kept young people out of lucrative careers are no longer at play. In fact, some industries are having trouble getting positions filled at all!
That being the case, our Millennial readers might be finding themselves in a brand new “real job”. It’s the same job they always thought they’d have, growing up, just a few years later than they planned to start. If this sounds like you, you are likely acclimating yourself to the professional world, taking part in a culture that’s different from any one you’ve experienced before. This can be a stressful and overwhelming learning curve, related not only to your job description but to all of the ancillary aspects of being a professional, like workplace benefits and your 401(k).
The 401(k) is what we’re talking about here. Maybe you already know what a 401(k) is and how it works; maybe you don’t. If you need a little primer on this important financial tool, here’s how it works. Don’t waste time taking advantage of it!
Like an IRA for private individuals, a 401(k) is a government-sanctioned retirement savings tool which goes through your workplace. Workers put away dollars into their accounts which are then invested. Dividends from these investments are reinvested into the 401(k). Dividends, along with (usually) monthly contributions from your paycheck can turn into big money by the time you retire! This is one of the most powerful wealth-building tools in the world, and it’s sitting within arm’s reach.
But first, you’ve got to use it. Many professionals don’t use their 401(k), which is kind of crazy, especially if your workplace matches your contributions. Contribution matching is one of the 401(k)’s best features. Though specific policies are not the same at every workplace, even if your employer matches you dollar for dollar to a certain point, that’s free money, folks! Don’t leave money on the table. If you can possibly make it work, contribute every dollar that your employer will match, every single month for the rest of the time you have your current job.
Many people will contribute even more than that. $18,000 is the annual limit for 401(k) contributions. People age 50 and older are nearing retirement, so they’re allowed to contribute up to $24,000 yearly to catch up. As inflation occurs, individual dollars lose value, so the government allows workers to contribute more to keep up. These increases happen irregularly, but usually every couple of years. For now, just try to contribute as much as you can, at least as much as your employer is willing to match.