ADVICE FOR NEW EMPLOYEES

Here is some good advice for college grads who are starting their first job -

·      If your employer offers a 401(k) plan contribute as much as you can afford to the plan – preferably at least the maximum that will be “matched” with employer contributions if this is done - and consider splitting your contributions between a “traditional” plan and a ROTH 401(k) if a ROTH option is offered by your employer; and

·      If your employer does not have a 401(k) plan, or if you cannot yet participate in the plan yet – or even if you can - contribute as much as you can afford to a ROTH IRA account.  If you want to be safe, invest in an “index” mutual fund. 

Tax-free compounding is a great thing.  Here, from “Getting an Early Start on Saving for Retirement” at 360 FINANCIAL LITERACY, is a chart that illustrates the power of tax-free compounding and hits home the benefit of starting to save for retirement early -

Contribute $200/month to age 65 at different hypothetical earnings rates   Start at age 20 Start at age 30 Start at age 40 Start at age 50 2% $174,931 $121,510 $77,764 $41,943 4% $301,894 $182,746 $102,826 $49,218 6% $551,199 $284,942 $138,599 $58,164 8% $1,054,908 $458,776 $190,205 $69,208   TTFN