Here’s a question: if someone offered you a choice: an extra $52 per month for the next 40 years, or $300,000 that’s all yours, but you have to wait 40 years to use it, which would you choose?
Okay, you have questions. Here are a few more details:
- $52 per month for 40 years comes out to $24,900, total.
- If you die, the $52 per month stops.
- If you choose the $300,000 and you die, a sizeable chunk of it will pass on to your family… say 10% at ten years, 25% at 20 years, 50% at 30 years and 100% at or after 40.
Would you choose the $52 per month and maybe get an extra tank of gas, with no guarantees… or more than a quarter of a million dollars in 40 years, with a guarantee that, even if you die before then, your family will get something.
Okay, now what if I took away the first option. What if I simply asked: can I give you $300,000 with one condition: You can’t touch it for 40 years?
A 401(k) is Free Money… Just Not Yet.
If your employer offers a 401(k) with a matching contribution up to 3% of your total pay, that’s the offer being made to you. When you invest 3% of your paycheck in a retirement plan, your company will match it. That’s an automatic 3% raise. That 6% of your total pay will work quietly for you over the next 40 years, accumulating more money faster and faster as it grows. Take your money out early, and you miss out on the true potential. But let it work for you as long as you work, and when when it matures, you’ll have a generous six-figure retirement fund. You won’t get rich quick, but it’s the easiest way to turn $24,900 into $300,000.
It’s Still Your Money, Your Employer Isn’t “Taking It From You.”
If you leave your contribution at 3%, then if you get a raise, then that contribution grows as well, which means your retirement fund also grows faster. If you leave the company and your new employer also offers a 401(k), you can take your money (it’s your money after all) and roll it into your new employer’s plan without losing the momentum you’ve built. Your money basically keeps working for you as if nothing happened. If they don’t have a plan, you can roll it into an IRA account… and the same thing happens…minus the 3% matching contribution…but if you up your contribution to 6%, then everything essentially keeps working the same.
A 401(k) Is Like Giving Your Future Self An Allowance So They (You) Won’t Have To Work.
It can be a challenge knowing that there’s money just sitting there, “doing nothing.” Most people see it as simple common sense: You have money now. You have bills to pay now. You have things you want to do now. And you have time… retirement is a long way off.
But, if you shift your perspective, you might come to a different conclusion. First, that money’s not “doing nothing.” It’s working to make you a lot more money. Second, you have money now because you have a job now. But down the road, there might come a day when you don’t want to work. Or can’t. Setting aside a small amount now (3%… that’s just three bucks– a cheeseburger at the drive thru– out of every $100 you earn) to work for you over time means when you reach that point, you would be sitting on a six-figure retirement fund.
This is just one aspect of really getting your feet on solid footing so you can focus on creating the wealth you need to live the life you want… but it’s an important part. This is the long-game part of it, the security of knowing that you and your family will be provided for in the future because you took steps today to take care of it.
In Part 2, we’ll look at what having a 6-figure retirement fund ACTUALLY means once you retire (HINT: At $11/hr, it means you can quit working, give yourself about a 10% raise and STILL keep your $300,000 year after year). In Part 3, we’ll look at some of the other tools that will take you even further toward the life you want.
