National 401(k) Day has been celebrated the Friday after Labor Day since 1996, in a drive to remind Americans to prioritize saving for retirement. The trick to becoming a 401(k) millionaire is to start young and allow your money to go to work for you. It may be difficult for someone who is just starting out in life to be disciplined enough to max-out his/her 401(k) fund contributions, but I'd definitely suggest setting up a budget. Find out what it's going to take just to pay your bills – not all of your wants and desires and the unnecessary things in life, just your bills – what it takes to merely exist. If you don't have money left over, it might be time to cut expenses, seek a higher-paying career or further your education.
Once you have an idea of what you can save, START saving! If your company matches your contributions, then most definitely contribute the maximum to take advantage of the free money they're giving you. If there's an option for a Roth 401(k) and you plan to work there for at least five years, choose the Roth. You'll contribute after-tax dollars, so your contribution, along with all of your gains over time, will be tax-free for life (and there are no required minimum distributions after age 70); the company's match contributions will sit in a traditional 401(k). Always set it up to auto-contribute! Out of sight is out of mind, and one day, you'll look at it and say, "I had no idea I had that much!"
However, don't just blindly contribute. Look at the choices available for you to allocate your money within the plan. Seek the help of a professional! Don't do what most people do and get what I call "water cooler advice" from your friends and coworkers. If you're young, be more aggressive; if you're closer to retirement and don't have an appetite for risk, be more conservative.
Should you find yourself in a hardship situation, look at other options instead of borrowing from your 401(k). Even if you can prove your hardship and can avoid the 10% IRS penalty for withdrawing from the account prior to age 59 ½, remember that this is your primary source of retirement funding and should never be touched, under most circumstances, if at all possible. I have seen way too many 30-50-year-olds decimate their retirement by making this mistake, only to realize what a poor decision they made when it was too late to rebound from the effects of early withdrawals. Money is relatively cheap right now, so a bank loan or line of credit may be a better solution.
The simple answer is to seek the help of a professional, start contributing as soon as possible, max out your contributions to the best of your financial ability, and let the time value of money work for you. After all, informed decision-making is always the best solution.
Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.