When my grandfather retired from Goodyear Tire and Rubber in 1959, he received a pension. Yes, those were the days when the company that you worked for took care of you. You didn’t have to put any of your heard-earned money into a retirement plan. You gave your employment longevity to the company and the company rewarded you with a lifetime income after your retired.

Kids born today will work on average for eleven different companies during their work life. We have moved form a defined benefit retirement plan to a defined contribution plan where you “define” your retirement lifestyle by how much you contribute to your retirement plan versus your employer.

The 2020 limits on contributions to a 401k plan are $19,500. The catch-up provision for those over age 50 will be $6,500. Why the catch-up provision? It will probably not surprise you to learn that those born in the “Baby Boom” generation have saved an average of $70,000 for retirement. When you consider the average 65-year old alive today will live another 19.3 years on average, retirement can last as long as 25 years or more!

That is a long time for your money to keep you in groceries provided you and your spouse are not working during those years. Take a look at the slide below and consider the time/value of money for a minute.

As you can see, time is our friend when it comes to saving for retirement. $3,000 invested at age 20 is worth more than if we waited until age 35 or 45. Don’t panic. One of my favorite witticisms is the one about planting a tree. You know, the best time to plant a tree was 20 years ago, the second-best time is now. Don’t get hung up on woulda’, shoulda’, coulda’ thinking. Start today. Figure out how much you can put into your 401k or other retirement plan.

Another beauty of your 401k plan is that it grows tax deferred. That means Uncle Sam isn’t dipping his hand into the pool to take taxes every year as he does with a taxable investment account. That is the magic of compounding. Your earnings become part of the principle and the whole thing grows year after year.

Look at the tax deferred impact not having your 401k taxed while you are saving makes on the balance of your account! Tax deferral is another reason you need to put as much into your 401k as you can while you are still working. Put the power of compounding to work for you!

Now, the two previous examples assume a 6% return on your investments. Unreasonable? It depends on your risk tolerance profile and how your investments are allocated within the 401k account. Click here to learn more about risk tolerance and asset allocation.

I hope these two examples will motivate you to think about your retirement and how you will fund the income you need. Your 401k plan is a great vehicle to accumulate the assets you need to retire on your own terms. Please let me know how I can help you get started today!