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Career, Finances

How 401(k)’s & IRAs are Game Changers

October 26, 2016December 2, 2016 BrianaOlsen

“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” Suze Orman

After college graduation, I was fortunate enough to have earned a position as an Account Manager with the Financial Firm that I had been interning for. The firm offered a 401k and full benefits, and I had no idea what any of this meant. Thankfully, my job was to learn & explain employee benefits to our clients, otherwise I might still be floating along the category of “What in the Haypile Does This Mean.”

A 401k is a retirement savings account that you can only have through an employer that offers & sponsors the account. Many companies provide a match of around 3%, or their contribution standing might fluctuate at any given time. That is like getting a 3% bonus each year! Very important.

I am happy to say that during the 5 years at that company, I was able to contribute close to $10,000 into my 401k account. Now I sit here as a 27 year old, calculating what I will need to continue to set aside for my future retirement (which seems wayy far off as I have a baby and a toddler). In reality, the years fly by, and I need to handle this now.

I used a 401k calculator that shows how much I’ll have if I contribute different amounts & if my employer contributes as well. If I have a retirement age of 65 (honestly, I’d like to work longer), that approximate $10k that I starting saving at 22 years old adds an additional $120,000 to my retirement account balance!

CNN has a great retirement calculator to show you what that ending 401k retirement balance needs to be at in order to retire. I was astounded to find that I will need $1.3 million by age 67 to retire (enter bug eyes face here).

I still have a long way to go. What I do know is that I can’t just sit on this starting nest egg and expect to live off of $120k for approximately 30 years ($4,000 per year, umm that sounds like a nightmare).

A good goal is to start by saving just 5% each paycheck, and have a goal to add 1% each year. Ideally, it is best to save 10%-12% (possibly more, depending on your age), but if you plan on saving 2-3% of each paycheck, you will find yourself in a crisis later on in life.

If you are 25, your salary is $35,000 and you haven’t started saving, you will need to set aside 12% of your paycheck if you want to retire at age 67.

If you are 35, your salary is $35,000 and you haven’t started saving, you will need to set aside 17% of your paycheck if you want to retire at age 67.

If you are 45, your salary is $35,000 and you haven’t started saving, you will need to set aside over 25% of your paycheck if you want to retire at age 67.

Wherever you are, the important part is to start. It is important to get those ducks in a row.

If you work for yourself or your employer does not have a 401k, talk to your local bank about starting an IRA, and consider your options.

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Tags: 401(lk), 401k, ducks in a row, employee benefits, employer sponsored benefits, financial freedom, financial security, how much to set aside 401k, IRA, retire at 67, retirement needs, retirement savings, savings account, self employed, things to do, work

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Hi, I'm Bri! I am a wife and mom to two beautiful children. I am a Graphic Designer & I love creating and writing.

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