Alison Sowell of Applied Material
San Jose, CA
I LOVE my 401K account because it has allowed me to painlessly save $1.2 million dollars towards my retirement by my 50th birthday without really feeling like I was sacrificing my day-to day living. I hope to continue working for many more years and continuing to watch my account grow on “auto pilot”, but I am secure in knowing that the nest egg I have built will help guarantee me a comfortable financial future if I am no longer able to work. By starting my 401K when I was 16 years old I had to save far less than my friends who did not start until their early 30’s. Being disciplined early on helped me create good habits with bill paying and saving that have helped me achieve home ownership and a great credit score!
When I advise co-workers to contribute to / maximize their 401(K)s the most important message I want to convey is that it is the easiest, painless way for them to "pay themselves" first, reward themselves with "free" money and guarantee themselves a comfortable retirement.
Our employer allows us to have a percentage of pay automatically deducted each pay period up to the maximum contribution amount of $18,500 which means that you “don’t miss the money that you never see”. Additionally, they match the first 3% of contributions dollar for dollar so that is free money that really adds up! Because the money is taken from your paycheck before you receive it you the income is tax deductible and does not count towards your gross income for the year. If you do the math, it is better for you to save for your retirement this way vs. receiving the money after it is taxed and then putting it in a savings account. Building on your automatic savings of tax differed income is the magic of compounding interest – any interest or earnings is automatically reinvested back into your account and grows tremendously over the long term savings when added with your annual contributions. The younger you are when you start contributing the less you have to save in later years to reach your end goal. If and when you change jobs your account is allowed to be rolled over to a new plan with no penalties as long as you don’t withdraw any money. Lastly, you don’t need to be a genius to invest the money. My 401k provider offers plenty of on line tutorials and easy investment options based on my age, goals and risk tolerance. They have advice lines and even personal appointments available for any questions I have about my account. The main safety feature if you are afraid of locking up your money is that you can access it in case of hardship or a one time major expense like a house, but you will pay tax on the money you withdraw and a penalty so only use this option as a last resort.