Nov 23, 2014

VISIT ELLAINSTITUTE.COM

Are You Turning Down Free Money?

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One of the big takeaways I learned from our Latinas & Wealth survey, is that you want to learn more about how to grow your wealth via savings and investment tools.  And now that we’ve taken a hard look at how much money you really make by analyzing your paycheck, it’s time for us to really dig in and talk about unlocking the potential of your paycheck by learning more about employer sponsored retirement plans.

Retirement Is Not As Far Away As You Think

“I know you’re probably thinking, “retirement is so far away!  I have time to figure it all out.”   Mujeres, wake up and smell el cafecito.

Retirement is not as far away as you think and each day that passes by that you don’t have a plan, is a day that you are loosing money.

Oh, and get this, we’re living longer…WAY longer in retirement.  It isn’t a coincidence that the Social Security Administration continues to raise the age of eligibility.  Thanks to modern medicine, plan to tell your nietos that this is your last Noche Buena for 30+ years.  I’m pretty sure that will have you guilting and depressing even your great grandchildren too.

Save And Invest Before You Spend

Do you know why I don’t keep snacks and dulces in my snack cabinet?  Because I’d devour them.  I’d happily graze through my snack stash, never really giving much thought to the extra calories as they make a giant beeline towards my ever expanding nalgitas…which would have nothing -ita about it.  I probably wouldn’t even care until I found myself desperately engaging in my not so graceful pull the jeans up over my hips cha-cha.  ¡Que pena!

Your paycheck kind of works the same way.  If you don’t take the time to point your money in the right direction, you’ll find yourself unconsciously spending as you go, not really acknowledging how much money you’re wasting until the damage has been done.  You don’t want to find yourself up against your retirement realizing your shoulda-woulda-couldas or worse…realizing you can’t afford to retire at all.

One of the best things you can do to set yourself up for wealth success, is by allocating portions of your paycheck to go towards investing and savings well before it hits your bank account.

Why Take Advantage of Employer Sponsored Retirement Plans?

Whether your employer offers a 401(k), 403(b), TSP (Thrift Savings Plan), profit sharing, or stock option plan, it is definitely worth your time and effort to learn about and participate in the program.  Learn more about the types of employer sponsored plans at Investopedia.

For the sake of simplicity, I’m going to discuss the most widely discussed of the bunch, the 401(k) plan.   A 401(k) is a “defined contribution plan” that allows participants to invest up to $17,000 per year of their pre-tax income.  Because this type of investment account is considered to be tax-deferred, you do not pay income tax on the amount of money you contribute to this plan until you withdraw the money from the account in retirement.

Okay, so in plain English.  Typically, you can choose to set aside a percentage of your monthly salary, say 10%, or a predetermined amount, like $300, to deposit into your 401k account.  The amount of money you set aside is taken off the top of your gross salary (read: before tax), so your monthly tax withholding will not be based on your full salary amount, it will be based on the amount of your full salary LESS your monthly contribution to your employer sponsored retirement plan, which equals a lower tax bill for you today.

Why does it matter if the taxes come out now or later?  Good question.  Right now, you might be paying more in taxes than you will wind up paying during your retirement which is when you plan to access, and consequently pay the taxes on, the money you contributed to your 401k.

Don’t Miss Out On Matching Contributions

The true benefit in participating in an employer sponsored retirement plan is matching dollars.  As in free money.  As in are you losing out on the easiest money you can ever make by choosing to do nothing?  Many employers will match up to a certain percent or amount of money that you elect to contribute to your retirement account.

Don’t leave free money on the table by not opting in to your employer sponsored retirement plan.

Say you’re employer matches up to 5% of your contributions…if you sock away 5% and your employer matches your 5%, you’re effectively DOUBLING your contribution.  ¡Wepa!  Free money.  If you save 10%, that’s right, now you’re saving 15%.  Amazing!

So, who’s going to go down to their payroll office and find out more about getting a head start on their retirement savings?

Let us know how you’re making the most of your employer’s retirement programs below!

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Adrianna Domingos-Lupher

Adrianna Domingos-Lupher

Adrianna Domingos-Lupher, MA, is an Accredited Financial Counselor and proud graduate of the University of North Carolina at Chapel Hill. She is a military spouse and mami of two who is constantly reinventing her approach to career and family life. She is the owner and writer at Military Money Chica and the Co-founder of Military Spouse Bloggers. On her personal blog, Military Money Chica, she seeks to empower military spouses to make the most of their money, family, and the military experience with a sprinkling of Latina sabor. Military Spouse Bloggers is the first professional network and agency that seeks to help military spouses build a portable and sustainable career in new media.

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Comments

  1. Melina Pentz says:

    I was surprised how many people opted out of our 401k program and a majority of them are older than myself and have kids. What a scary thought to think you could be working until your retirement with nothing saved! Free money should be enticing enough. I’m grateful I am participating in my company’s 401k plan and having it matched by 6%. The way I see it is that I don’t have a reason to touch that money now and by allowing it to grow I have less to worry about when I retire.

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