Almost a year ago, I landed my first “career job.” After a year of barely making ends meet, it was a relief to have a small, but steady, paycheck. Even more exciting than the reliable paycheck was getting my first benefits package. Upon receiving my offer letter, I behaved like the millennial I am and immediately looked at my vacation time.* Once that passed muster, my eyes scanned down to the insurance plan and the option to sign up for a 401(k).
As a woman who loves to save money, the 401(k) grabbed my attention. I didn’t know much about 401(k) accounts at the time, but I did know it meant funneling money out of my paycheck into a “safe” location in order to develop a nest egg for retirement. Word on the street, a 401(k) was far better than a savings account. (Finance experts and other personal finance bloggers may feel free to say, “DUH!” right here.)
The 401(k) my company offered included a 100% match to 3% and then a 50% match on the next 2%. Essentially, I would get “free” money for tucking 5% of my paycheck into a 401(k). Upon further inspection, I learned we even got a choice between a traditional and Roth 401(k).** After consulting with my father about investment options for my 401(k), I made my choices, deferred a percentage of my paycheck and patted myself on the back for being responsible.
Three months later it dawned on me to check my 401(k) account. (Another moment for people to smack their foreheads in frustration with my rookie ways.) After fiddling around with my username and password combo a few times, I finally made it to the wealth management dashboard. I clicked around on the dashboard until I stumbled upon my account statement. I proceeded to do a dramatic Breakfast-Club-style fist pump at my desk. Without paying much attention, I had savings! It seemed like magic!
(Screw you Jersey Shore. THIS IS A FIST PUMP!)
In the past year, I’ve been shocked by the number of (employed) millennials not taking advantage of a 401(k) or failing to contributing to an IRA. Some have said they don’t want to contribute a percentage of each paycheck because they’d rather be able to spend it now. Other claim they need those extra dollars to put towards loan payments. The worst reaction are the handful who are too apathetic to go through the process of setting one up.
Choosing not to invest in a 401(k) in an employer matched 401(k) is essentially throwing away money. If you work for a company with a 401(k) offer and are not taking advantage, please, go in tomorrow and at least defer up to your employer’s match.
For millennials confused about 401(k) and IRA retirement accounts, stay tuned. If you have questions you’d like to see addressed, please include them in the comment section or tweet/email me.
*I hate to brag, but my company offers four weeks for your first year. It goes up to five after a year. Who am I kidding? I love bragging about my vacation days!
**Check back next week for part II in this series, which will include the difference between Roth and traditional 401(k) accounts.