When you start working at your first professional job and move out on your own, you may have a whole new set of expenses. From rent and utilities to paying off car or student loans, the expenses can add up fast.
It may feel nearly impossible to set aside money for your retirement in addition to your new expenses. But, here are three reasons why you might want to start saving for retirement now, especially if your new employer offers a 401(k) plan.
Many employers match the dollar amount you put toward your 401(k) — some match 100 percent of your contributions, but most match a portion of what you contribute, says the Financial Industry Regulatory Authority (FINRA). With a match program, you may want to consider contributing enough to receive the match. If you don’t put money into your 401(k) or don’t put in enough to receive your company’s match, you’re essentially missing out on free money, says FINRA.
The contributions you make to your 401(k) are made “pretax,” which means the income isn’t taxed until the money is paid out to you later in life, says FINRA. This might also lower your taxable income, says the Internal Revenue Service, which may reduce what you owe in taxes each year or potentially increase your refund.
If you’re early in your career, you may be concerned about what happens to your 401(k) if you eventually change jobs. Typically you can roll your 401(k) over to another retirement account, says U.S. News and World Report. It may be reassuring to know that you’ll likely have options for your retirement savings, even if your career path changes. Being able to take your savings with you to your next move can be a huge plus.
While it may seem daunting at first to start a 401(k) in your 20s, taking the time to start saving little by little now may potentially lead to bigger savings down the road.
The statements above are for educational purposes only and not intended as specific tax advice. Allstate cannot provide tax or legal advice. Consult a tax advisor regarding your particular circumstances.
Originally published February 7, 2012.