Consumer Alert: So you have a college job. Are you contributing to your 401(k)?
ROCHESTER, N.Y. – This consumer alert is for twenty-somethings and anyone who loves a twenty-something. I decided to address the topic after having a money talk with my 21-year old son. My son is in college; he has a job, and he lives at home. And he recently got a packet in the mail from his employer that said he’s now eligible to participate in their 401(k). And get this. The employer will match up to a certain percentage of the employee’s contribution. I was thrilled. But my son was not. In fact, he was completely disinterested. But I explained.
In 2020, about 40 percent of full-time college students and 74 percent of part-time students had a job. And there are a number of reasons why your second decade of life is a great time to start contributing to your 401k. First, you have the luxury of time. In the words of Bankrate, ”You have time to maximize the power of compound interest.”
And in your twenties, you have fewer expenses, no mortgage, no kids, and likely the help of parents. Jarrett Felton, News10 NBC personal finance expert and managing director of Invessent, says first you need to consider the dollar amount you’ll need to retire. Here’s the question to ask yourself.
“What is that dollar amount going to do for you and your family and your household in the form of income?” said Felton. “That’s really what retirement is. It’s really trying to figure out what’s my cash flow going to be when my source of income stops. So how much money do I need to save to replace the employer that’s paying me, by me paying myself through my savings and accumulation over my working lifetime.”
Felton says you need to assume you’re going to live to be a hundred. Then think about the salary you’ll need to pay yourself annually. You can use an annuity calculator to figure out how much you need to save.
In fact, when you are job hunting, one of the questions you should ask is about whether the company provides a 401(k) and will match an employee’s contribution. According to the Department of Labor, the average amount is up to 3 percent of the employee’s salary. If the company skimps on that benefit, it’s likely it’s less than generous on others as well.
And believe me, you can start saving now. In the 90’s, I was a twenty-something making $21,000 at a TV station in Arkansas. I was so painfully, profoundly broke. But I paid off my car and contributed the money that used to go toward my car note to my 401(k). Twenty-five years later, I’m glad I did.