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401(k) Fact |
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About 55 percent of all eligible employees participate in 401(k) plans but only 28 percent of those aged 21 to 24. |
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Participating in a 401(k) plan gives you a head start on your long-term financial security. A 401(k) not only provides a mechanism for saving. It also allows the money in your account to compound tax-deferred. That means that the earlier you begin to participate and the more you contribute, the greater chance you’ll have of amassing a substantial retirement account.
For example, suppose you contribute $300 per month to your traditional 401(k) and earn an average annual 8 percent rate of return. If you participate for 20 years, the account could be worth $178,184. But if you had started 10 years earlier and contributed at the same rate for 30 years, your account could be worth $450,388.
Earning 8 percent with your 401(k) investments isn’t a sure thing, of course. Your account may lose value in a down market. And if the investments you choose do not provide at least the average return in a strong market, you may accumulate less than you anticipated. But if you don’t participate at all, you won’t have a retirement account to draw on after you stop working.
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