Our oldest daughter changed jobs this past December. I’ve been texting and emailing periodically to ask her if she has been able to enroll in her 401(k) plan yet. I did not want her to lose any time because I know time is money. She has contributed the max to her 401(k) from day one. But with a job change it’s possible to lose sight of the end game.
To work, compound savings needs seed money. Most companies – hers included – will incent you to save in your retirement plan by matching a percentage. That’s free money you will not get if you do not save and deposit money in your 401(k) plan.
Set it and forget it!
The “set it and forget it” approach to these 401(k) deposits is the most effective way to make this magic happen. As hard as it is to get the process going – meaning, to jump through all the hoops and file all the paperwork – it is far easier once it’s done to stay in the plan.
Even though most millennials are still doubtful, I know that the short-term sacrifice of having less in each paycheck is worth the long-term payback. Especially since those are funds you will be able to rely on to live a quality life when you are 60. And money you sweep into savings is money you will eventually not miss in every paycheck. Eventually.
I have stopped expecting millennials to get this now. Why should they? I didn’t get it either. I was lucky in that I had an employee/friend early on in my financial career ask me if I had filed my 401(k) paperwork. (You guessed it – I had not.) She looked at me and said, “Let’s do it now.” “Okay,” I said.
How much should 20-somethings set aside?
When I came to the place on the form that asked me how much money I wanted to sweep in to that retirement account, I asked her advice. “The max,” she said without hesitation. “Okay,” I said, blindly following this person’s advice. “Blindly” following because I was in my early 20’s. And frankly, I did not have a clue. I was excited about life, having money for the first time in my life, and thrilled to be in my first apartment. Retirement? Visualizing myself at age 60? (The age I am now.) Nah. So, tell me why we all think our sons and daughters should be able to see what we could not see?
Because we have a solid relationship when it comes to money and advice (she is not afraid to ask us any questions or to bring any financial missteps to us for advice) she has now enrolled in her new 401(k). Four years of depositing the max in her 401(k) has her way ahead of her age group. According to the recent stats for her age group, the Average 401(k) balance is $11,600 with the Median 401(k) balance at $4,000.
At some point, when she is 60, she will get it because she will live it. Until then, I’m here to keep her focused. Helicopter mom? Maybe. I can live with that title when it comes to making sure she lets her money work hard for her now and takes care of her when she needs it most.