78% of workers ignore “the biggest money-making asset”

Saving for a secure retirement requires a series of money-smart strategies that come together, and in the eyes of workers, some factors seem more integrated for success than others.

Tops the list in a recent study by Principal Financial Group: Get a matching contribution from your employer in your 401 (k) plan. Nearly two-thirds – 62% – of workers identified company matches as important for achieving pension goals.

That workers are happy with the fight should come as no surprise, says Tess Zigo, a certified financial planner at LPL Financial in Palm Harbor, Florida. “We like to refer to it as ‘free money,’ and that’s it,” she told Grow. “If I deposit 3% of my money and you deposit 3% of your money, sign up! I’ll take your money.”

Getting “free money” is a no-brainer. It’s math. Therefore, it is a bit strange that only 22% of the employees in the survey identified starting to invest early (in their twenties) as important for building a secure pension.

For some experts, such as IRAHelp.com publisher and state-certified public accountant Ed Slott, the remaining 78% make a big fool. “The biggest asset you can make money on is time,” he says.

Here’s why you should prioritize both to maximize your chances of building wealth toward retirement. Here’s a tip: The benefit of starting early also comes down to math.

Getting a match is ‘the No. 1 thing’

If you choose how to invest for retirement, you would do well to prioritize your retirement retirement plan, Grant Sabatier, a millionaire early retiree and author of “Financial Freedom,” told Grow. “The # 1 thing is to invest enough to get the 401 (k) match,” he says. “It’s 100% free money. If they match 50% of your contribution, it’s a return of 50%.”

If your company offers a 401 (k), it is very likely that it also offers some form of matching contribution. Of workplaces that offer 401 (k) schemes, 98% contribute to their workers’ retirement savings, according to the Plan Sponsor Council of America. The most common set-up: The company contributes 50 cents for every dollar the worker deposits, up to 6% of salary, according to Council research.

Video by Ian Wolsten

So how much impact does a matching contribution have on your long-term return? Consider the following calculation (which you can replicate and modify using the Bankrates 401 (k) Calculator). A 21-year-old investor earns $ 50,000 and contributes 6% of her salary to her 401 (k), which her employer matches for 50 cents on the dollar. Her employer raises her salary by an average of a modest 2% per year, and her investment portfolio earns 8% per year.

When she retires at age 66, she will have contributed nearly $ 220,000, and her employer has contributed about $ 110,000. Her expected total amount, including the growth of her portfolio: $ 2.3 million.

Had she blown the employer match off and invested in e.g. an IRA, she would miss out on not only the employer contributions but also the increased growth of that money. Eliminate the matching contributions, and her total at retirement slides all the way down to $ 1.5 million.

Buffett: Time in the market lets your money ‘snowball’

Slott is not the only one who believes that investors are mistaken in downgrading the time in the market. As a young person, “you have something that older investors do not have: time,” Craig Ferrantino, president of Craig James Financial Services in Melville, New York, recently told Grow. “Time is the biggest predictor of market success.”

Video by Courtney Stith

The reasoning is once again mathematical. Having more time in the market drastically increases the potential boosting effect of boosting returns. “The map of compound interest is that it behaves like a snowball of sticky snow,” Warren Buffett said at the 1999 shareholders’ meeting of the firm he runs, Berkshire Hathaway. “And the trick is to have a very long hill, which means either starting very young or living to get very old.”

One is clearly easier to control than the other. To return to the former hypothetical, the 21-year-old investor who invested 6% of his salary in his 401 (k) and got the match could end up with $ 2.3 million at retirement. Under the same conditions, if she had waited until she was 26 to start investing, a gap of just five years would drop to just over $ 1.5 million. Had she started as a 30-year-old, she would have just under $ 1.1 million by the time she turned 66.

The views expressed are generalized and may not be appropriate for all investors. The information in this article should not be construed as and may not be used in connection with an offer to sell or an invitation to an offer to buy or hold an interest in securities or investment products. There is no guarantee that past results will repeat themselves or result in a positive result. Carefully consider your financial situation, including investment goals, time horizon, risk tolerance and fees, before making investment decisions. No level of diversification or asset allocation can secure profits or guarantee against losses.

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