10 Reasons Why You Should Invest in Your Company 401(k) Plan

401(k) Plan

Although the 401(k) has been around for nearly four decades, the participation rate is still far lower than it should be. According to the Bureau of Labor Statistics, just over half of eligible workers participate in their 401(k) plans, and a large percentage of those contribute only a small amount.

If you are among the nearly half of American workers who is not currently taking advantage of a 401(k) plan, you might want to take a step back and consider the many advantages of these retirement savings programs. Starting on the next page you will discover 10 reasons why you should be investing in your company’s 401(k) plan.

1. Free money

Many employers offer the ultimate enticement for workers who participate in the company 401(k) plan. Whether they match 50 cents on the dollar or provide a dollar for dollar match, that is free money, and there is no reason to turn it down.

2. Simplicity

Getting started with investing is hard, but signing up for the 401(k) plan could not be easier. Many employers automatically enroll new hires in the company 401(k) plan, providing the ultimate in simplicity. Even businesses that do not offer auto-enrollment generally make it easy for their employees to get started with their retirement planning.

3. Automatic escalation

When you first start investing, you may only be able to put in 1% or 2% of your paycheck, but automatic escalation gives you a chance to ramp up the savings. You only have to sign up once and the plan administrator takes it from there.

4. Diversification

Diversifying your investments is important, and 401(k) plans provide an easy way to invest in a wide variety of financial instruments. From bond funds and growth stocks to goal-oriented retirement plans, the typical 401(k) offers one-stop shopping.

5. Tax savings

The money you put into your company 401(k) plan is deducted from your taxable income, so you save money now while putting funds away for the future. The tax savings can be quite substantial, giving you one more reason to save.

6. Discipline

Having the discipline to save can be tough, especially when there are so many things vying for your money. Investing in a 401(k) plan is a great way to build fiscal discipline, and that will serve you well for the rest of your life.

7. High contribution limits

Compared to many other types of retirement funds, 401(k) plans have very high contribution limits, so you can put away an extraordinary amount of money. For 2017, the maximum 401(k) contribution is a generous $18,000, plus a catch-up contribution of another $6,000 for workers 50 years of age and older.

8. Dollar-cost averaging

By putting money into your 401(k) plan with every paycheck, you are taking advantage of dollar-cost averaging, one of the most important concepts in the world of finance. Dollar-cost averaging means you accumulate more shares when the market is down and fewer when it is up, epitomizing the buy low, sell high concept.

9. Loan provisions

While taking a loan from your 401(k) should always be a last resort, having that provision available can be a lifesaver in certain circumstances. When you pay back your 401(k) loan, you are paying yourself, which minimizes the impact of the borrowing.

10. Pensions are going away

Your parents and grandparents may have had pensions to rely on, but those employer agreements are going away. Without a pension to rely on, you need to take charge of your own retirement, and signing up for the 401(k) plan is a great place to start.

If you are not yet participating in your company’s 401(k) plan, it is time to get started. When Monday comes around, head to your human resources office, ask for the forms and sign up. Whether you can spare just 1% of your pay or 10% or more, getting started will give you all of the benefits listed above, and the sooner you get going, the better off you can be.