Financial Advice About Why You Need a 401(k) Plan

When someone suggested I work in the stock market about 20 years ago, I laughed in their face. It was the mid ‘90s and I had just sold my caffeinated water company, Krank2o. My experience laid in entrepreneurship and small businesses, leading me to believe there was no place for me in the stock market. Well, I was wrong. There was a place for me and it was in the world of 401(k)s. 

Now, you may think, what's a creative guy like me doing in 401(k)s? But it was a good fit for me; I was going into smaller businesses like the ones I got my start in and teaching the employees about their options for their future. I was making positive changes in their lives. I liked helping people prepare for their retirement, and I was good at it. Stockbroking was fun but retirement investing felt like a more long-term way to help people.

My newfound passion led me to start Social(k), the first 401(k) platform to offer more than a few socially responsible funds. We offer about 500 screened, socially responsible options, and more than 5,000 traditional funds. I saw an opportunity to take the relatively sustainable personal investment that is a retirement plan and make it sustainable for the global community as well. Why not make that mass of slow money work for the world, as well as the investors?

As the president of Social(k) I spend a lot of time talking to employees and employers about why 401(k)s matter, and the number of people who believe they don’t need to prepare for the future is shocking. Part of my job is to help you see why you should, so that when the time comes, you can enjoy retirement with one less thing to worry about.

Here are three reasons why you should have a 401(k).

1.   You owe it to yourself.
You have to take personal responsibility for yourself. If you think you are going to live a long and healthy life, you owe it to yourself, your family and society to prepare for that. You may believe your expensive cars and valuable real estate will see you through, but those markets can crash, and you want to have savings elsewhere in case that happens. Why not put some of the money you’ve worked so hard to earn into a tax-sheltered place? Which brings me to my second reason…

2.   The government really wants you to.
The government wants you to put money away for retirement so badly that they will give you tax incentives. An example is the pre-tax incentive. This occurs when you put a certain amount of your earnings into your 401(k), and the government does not tax you for that part of your earnings. At that time, you only have to pay tax on the portion of your earnings that does not go into your 401(k). They will not tax the rest of the money until you are ready to take it out of your 401(k), and the theory is that when you take it out, you will be retired and earning less money, so you are at a lower tax bracket. Not a bad deal, is it? The Roth IRA post-tax option is even sweeter. Put the money in after taxes are paid and all earnings come out tax-free!

3.   It's free money.
The best part about having a 401(k) is that it grows. When you’ve retired, the money you put into your 401(k) will almost certainly have increased in value. Yes, I’m saying you get free money. For example, you put in $50,000 and now the fund is worth $150,000. Need I say more?

My question for you now is, after reading this, do you still have qualms about investing in a 401(k)? And if so, why? Leave your answer in the comments below to be addressed in a future story.

Stay tuned for a five-part series on “fossil-free” investing brought to you by the fund managers helping you prepare for retirement.

Robert Thomas is a member of the DailyWorth Connect program. Read more about the program here.

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