Section III-A - Lesson 2
Your 401k - It's About Much More Than Just Retirement
If you're 25 or 30 years old, it may be hard to keep your eyes from glazing over when the company benefits people start talking about the 401k plan. Retirement seems to be a zillion years away, and meanwhile you have current issues to resolve. You may believe that any money you contribute to the plan won't be available to you for the next thirty years or so, and this sure doesn't make it seem the least bit urgent or desirable to start participating in the plan.
As logical as these arguments may seem, there are overpowering reasons for you to think differently. First of all, almost all the plans allow for loans, whereby you borrow money from yourself and pay yourself back over time. This isn't something you'll be doing for trivial reasons, but it may be something you might do for a down payment on a home, or college expenses for your kids. There are pros and cons about how and when you might want to do this sort of thing but the point is, you can do it!
Your 401k, then, is about much more than "saving for retirement". It's about building wealth! It so happens that the rules (like IRA rules) favor leaving the money alone until retirement, but that doesn't mean you have to do it. What you get in exchange for these rules is the best investment opportunity of a lifetime.
No other investment you will ever make will give you the advantages of your 401k. You contribute your money before taxes. Your company may match all or part of your contribution. The match goes into the plan before taxes. And all of the money in your plan grows tax-deferred until you start to spend it.
This is almost incredible when you stop to think about it! If your employer matches even 50% of your contribution (which is fairly typical), you make an immediate 50% on your investment - even more when you consider the tax benefits. No other investment will ever promise you this sort of immediate and assured performance!
Our classic textbook, Financial Independence 101, A Simple Strategy For Building Wealth, on which this course is based will tell you a great deal more about how you can use your accumulated 401k balance to fund all sorts of needs before retirement. It will explain further why we say that your 401k is so much more than just a retirement program.
So you've got to find a way to start participating in your plan as soon as possible. Otherwise you're throwing away money that you should consider to be part of your salary - the tax breaks and the company's matching contribution. You'll want to stop focusing on the money that's coming out of your paycheck, and start focusing on the extra money that could be going into your future.
A Publication of About Your 401k.com
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