If you don’t already have a 401(k) plan setup, get the process started now.
Most Americans are slightly familiar with 401(k) plans. They’re retirement plans. For most, they’re a backup plan. Others are counting on their 401(k) as a major source of income during retirement. These plans are funded by employee payroll deductions. The money is then invested in mutual funds. Popular investments include stocks and bonds.
Right about now, you might be questioning the safety of starting a 401(k) plan. After all, the stock market took a huge dive in 2008. Those with investments saw their retirement plans decrease and fast.
Right now, the stock market is at a low. Financial and investing experts are claiming it can’t get much worse than this. They’re advising investors to stick it out. Many have the view of “the market can only improve.” Yes, this might take years. This is however, where you’re at an advantage. If you have yet to consider a 401(k) plan, you’re likely young. You may be in your early 20s or 30s. What does this mean? You can play the waiting game. You can purchase stocks for cheap and wait. Remember, most financial experts are saying they’ll only improve. Since it will be at least 25 years until you retire, you can survive the market’s ups and downs.
If it wasn’t enough that you can invest money in stocks now, for some of the cheapest prices ever, there are more benefits to having a 401(k) retirement plan. Among those benefits is the tax advantages. As previously stated, 401(k) plans are funded by employee payroll deductions. By automatically deducting this money from your checks, you’re less likely to miss it. Moreover, your contributions are not taxable. For example, if you earn $50,000 and contribute $2,000 for one year, your taxable income for that year is only $48,000. The only downside is that the taxman eventually gets his hands on your money; it’s taxed when used for retirement.
Another benefit of creating a 401(k) plan is employer contributions. Most employers have plans in place that allow them to match employee contributions. This varies greatly depending on the company in question. Several have restrictions on the matching allowed. For example, a new employee might get a 25% match. Some companies will match contributions 100% or more. Before creating a 401(k) plan, it’s advised that you speak with your employer. See if they match your contributions and by how much.
Finally, there’s the flexibility of 401(k) plans. As previously stated, most employees opt to invest in stocks and bonds. The decision is yours to make. You’re in control of your money. Most financial experts recommend that older individuals opt for low-risk investments, like short-term bonds. These individuals can suffer damaging consequences from risky investments, like the stock market. On the other hand, those young in life are often encouraged to take a gamble. It will usually pay off and may result in long-term wealth.
As you can see, there are a number of benefits to creating a 401(k) retirement plan and profiting from the current state of the stock market. Now is the time to purchase low-cost stocks. Sit back and wait as they survive the struggling economy. If you play your cards right, your 401(k) won’t just supplement your pension and social security, but it could finance your retirement years on its own.
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