Start saving NOW!

I just read an interesting article in the October 19th issue of Time about 401(k) retirement plans, and it had some points in it that are relevant to people just entering the workforce. Basically, the article focused on the problems that were presented to American workers when most big companies switched from defined pension plans to 401(k) type plans a little less than 20 years ago.

Basically, if you aren't familiar with what a 401(k) type retirement plan is, participating employees defer money into an account; money deferred into this account isn't taxed until withdrawal (upon retirement, if the employee doesn't want penalties for early withdrawal). Lots of companies choose to match employees' contributions as a benefit. Pensions, on the other hand, pay a defined amount upon the employee's retirement, sometimes based on the employee's years of service, position, etc. Forgive me if I'm off on anything; it's been awhile since we covered this stuff (at least a few months :P).

The problem with this, as the article points out, is that it takes around 30 years of continuous contributions to the account to provide enough, in combination with social security, for retirement. Since the plans have only been around for about 20 years or less, many of the people who were forced into retirement by the recent recession are finding that they don't have enough money to support themselves for any substantial amount of time. In the case of one unfortunate 68-year-old featured in the article, the retiree was forced to get a job at a golf course (a job which regularly starts at 5 a.m. or earlier).

The moral to this story is that if your retirement plan, whenever you get a job, is a 401(k) type plan, START SAVING. According to the article, the balance on the average 401(k) account is just over $45,000. Imagine the prospect of trying to live out 30 of your "golden" years knowing that you have enough to provide for only one, well...call it a "bronze" year. If you start saving now, you have your whole career to accrue money--contribute the most that you can! The 67-year-old version of you will thank you for it (although the retirement age will probably be a little bit older when we retire, but that's a different issue).