Back to Your Future: A 401(k) Cautionary Tale

A 401(k) story: It’s the end of a long workday, and you’re ready for some hard-earned downtime binge watching that new sci-fi series you heard about — along with delivery from your favorite restaurant. You open an app and tap in a food order, quickly dismissing any feelings of guilt about skipping a chance to cook at home.

You get the TV fired up just as the doorbell rings. Cool, it’s your chicken a la king right on cue. You open the door expecting your usual driver but instead find yourself face to face with an older guy who’s oddly familiar looking. There’s something about his careworn appearance and the beat-up sports car idling at the curb behind him that strikes you. As he hands you your food, it seems sad that at his age, he’s out working on a Friday night — and in a rainstorm no less. You can’t shake this feeling that you recognize him, and you realize you’re staring. Finally you just have to ask, “Do I know you?”

“You more than know me,” he says, “you are me.”

Your eyes lock and any feelings of fear or disbelief instantly fade. You know he’s speaking the truth and his presence here in front of you somehow seems completely plausible. More than that, you get an overwhelming sense of urgency. He has something to tell you and your intuition says it’s important. You ask him why he’s here.

“I’m from our future.” he explains, “Thirty years from now, you’ll be me. Instead of ordering meals, you’ll be delivering them. And that’s just one of our jobs. We’re also working as a greeter in a big box store — and there’s that dog walking side hustle. This is definitely not the retirement we dreamed of.”

“How could this be?” you ask. “Did we get fired?”

“Just the opposite,” he says, his eyes dropping to his scuffed shoes. “We were really successful and had a great career — even got a watch and a party on our last day. We were responsible with our money and didn’t even have that much credit card debt. But we made one big mistake. We didn’t save for retirement. We had money in the bank and just assumed it’d be enough. Turns out, we weren’t even close. We made a big mistake, but you have a chance to correct it for both of us — tonight.”

Is this really happening? Your future self is here on your doorstep delivering your dinner because of something you did …  or didn’t do? You have to know what it is — or was.

“Check the mail,” he says. “Today is the day that you can change our future, instead of throwing it away. Don’t make the same mistake again.” And just like that he was gone, running back to his car through the rain.

You close the door, stunned by his words but burning with curiosity to know what might have come in the mail that could alter your future that much. You put the food on the table and sort through the pile of envelopes on the counter. It’s mostly ordinary things like bills and shopping flyers but then you see it — your company mailed you a brochure and enrollment paperwork for your 401(k) plan. On any other night, you might have just tossed it aside — but now, you open the brochure with hope and curiosity — because you know that you’re holding the key to your future in your hands, and you’re not going to let this chance pass you by this time.

Hopefully, it won’t take a knock on the door from the future to get engaged with planning for your retirement, but you’d be surprised how many people overlook this singularly important step or choose to wait until they feel more “established” before starting to invest for retirement. That’s a common mistake that can cost you in more working years and leave you with less saved to meet your retirement needs. Here are some of the benefits you’ll be giving up by not — or delaying — enrolling in your 401(k) plan.

Lower Payroll and Income Taxes While You’re Working

• Your contributions are made pre-tax – meaning they’re taken out of your salary before you have to pay taxes on them
• The money in your account grows tax-deferred – meaning the government doesn’t tax your account no matter how much money you make. This means more dollars get put back in to invest and grow faster.
• You don’t pay taxes until you take out the money to use in retirement and typically, you are in a lower tax bracket and pay less than you would’ve when you put in the funds.

Employer Matching Contributions

Many employers who offer 401(k) plans include a funds matching program. For every dollar you put in, they will match it (or a percentage of it) up to a limit. Not enrolling in a 401(k) with a company match is leaving free money on the table. You may need to leave your funds in the retirement account for a certain amount of time to be fully “vested” in those matching funds — but after that, the money your company contributed is all yours.

The Power of Compounding

What do you rather have $5 million or 1 penny that doubles in value every 30 days? If you choose the $5 million, you’ve left another $5 million behind due to the power of compounding. While doubling your funds every 30 days won’t happen in a retirement account, by reinvesting dividends and letting your funds grow in value over a 30-year time period, tax-deferred, you can earn far more than you could in a simple savings account. Setting aside $1 million for retirement doesn’t have to be out of reach, especially if you start early enough.

So what happens to your future self after you invested in your 401(k)? Well in this back-to-the-future retirement saga, you save enough money to retire on the coast, travel to exotic locales and have extra funds to help your family when they need you most. And best of all, you won’t need to show up to your own door with dinner during your golden years – you’re too busy living your best life.

Source

https://www.forbes.com/sites/zackfriedman/2017/08/02/401k-millionaire/?sh=4fda2fb02c5c