A new year is a perfect time to assess your current financial situation, set clear financial goals, and create a savings plan for retirement. Employers can offer investment options to ensure that you stay on track for a comfortable retirement.
With all the demands of our day-to-day — both at work and in our personal lives — it’s easy to focus on today and put off thinking about the future. Even if retirement feels distant or there doesn’t seem to be time to think about it, setting aside even a little now can make a big difference, thanks to the power of compounding interest.
If you found a $20 bill on the ground, and let’s assume it has no obvious owner, would you pick it up? How would you feel about your find? It is found money after all.
When you contribute to your employer retirement plan (401k or 403b), you can use pre-tax dollars, which reduces your taxable income. And if your employer offers to match a portion of your contribution, it is like found money. To get started, you can set aside a smaller amount and increase it each time you get a raise or you can contribute the amount the company will match. FYI: you can also max out your contributions ($23,500 in 2025); however, your employer will not match that amount. It is a winning combination: a reduction in income taxes, and your employer contributes money toward your retirement savings account.
Typically, employer retirement plans offer several mutual fund investment options. A mutual fund is when many people pool their money together and is managed/invested by a professional money manager. You can select the level of risk based on the mutual fund’s investment strategy and some mutual funds invest in specific types of companies (eco-conscious, woman-owned healthcare, etc.)
And thanks to the magic of compounding, where you earn interest on the interest paid, the money you set aside today can multiply. In other words, your “Money makes money, and the money that money makes; makes more money.”
Taking a closer look,, you can see how compounding supercharges money you invest. Without compounding, if you were to put $85 each month for 30 years in a non-interest-bearing savings account, you would have a total of $30,600; however, because of compounding, that $30,000 more than triples.
Establishing a payroll deduction makes saving for your future automatic and effortless. If your employee benefits include an employer match, this is free money for you. Additionally, when the money is invested, it earns interest. In the example below, you can see that the interest you earn, along with your contributions and the employer match grows significantly beyond your out-of-pocket contributions.
So, even amid the craziness of our busy schedules, it’s worth considering how we can take advantage of this benefit. Starting small and being consistent can lead to a secure future. Let’s invest a little in ourselves today for our tomorrow!
Read Cents and Sensibility: A Guide to Money Management – 8th edition.