Put as much as you can in your 401(k) now, and you benefit in at least two ways. First, you save tax now. For 2016 and 2017, you can contribute $18,000 plus an extra $6,000 if you’re over 50. This translates to a potential tax savings of $9,504 if you’re over 50 and in the highest tax bracket. Now’s the time to start figuring out how much you’ll need to save each month for 2017. If your employer provides a matching contribution, that’s free money. So it’s smart to contribute at least that much.
The second big benefit is the power of compounding interest. Susie Saver started putting away $6,000 a year at age 20. If she keeps that up until age 65, and gets a 5% return, she could have $984,000 when she’s ready to retire. Her total investment would be $270,000. In contrast, Steven Spender waited until age 45 to start saving. He would need to put away about $27,600 per year to catch up to Susie. Steven would invest $552,000 over 20 years, over twice the amount that Susie needed. Susie gets more bang for her buck by starting early. She’ll also have an easier time putting money away each month for a rainy day fund or for big purchases like homes or cars. Even if you’re over age 50, you can still benefit from compounding interest. Please call our office so we can help you reach your savings goals.