New Job? Definitely Sign Up for 401K

Q.  I begin a full-time job next week and got the packet of sign-on forms that need to be filled out.  My father told me to sign up for the agency’s 401K and put in the maximum contribution, but I need the money after not working for the past seven months.  He insists.  Do you agree?  -TM

A.  Sorry, but your dad is right.  I suggest a compromise–earmark 3% of your salary for the 401K.  When you pay off bills and get your next promotion, move up the withholding percentage.  It’s hard to think about retirement at this stage of your life, but the financial decisions you make now will make life a lot easier and more enjoyable in 40 years or so.  In addition to the tax-deferred benefits of a 401K, many companies match a portion of your contributions. 

You’re not alone in questioning the need of investing your hard-earned money.  You might benefit from reading the Money Magazine article, “The Young and the Riskless.”  It provides a strong case for why you need to begin investing early in your career or risk dying broke.  At the risk of pushing you too hard, I also recommend that young people begin pumping some cash into Individual Retirement Accounts, another good way to amass tax-deferred money you’ll need later.

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