The best 401(k) strategy is simply to contribute as much as you can as early as you can.
First, because you don't know what the future may hold: unemployment, disability or even the decision by one parent to stay home with the kids.
Second, the sooner you begin saving, the sooner you can harness the power of tax-deferred compounding. For example, say you'll need $1 million in your 401(k) when you retire in 35 years. Assuming an 11% annual return, you'll need to put back a little more than $200 a month. But put off saving for five years and that monthly savings figure jumps to $356; wait 10 years and you'll need to shell out $634 a month.
Maybe you find yourself unable to sock away the maximum amount in your 401(k) plan. That's okay. Try at least to defer enough to claim the full employer match if your plan offers one. You don't want to pass up free money.
© 2010 The Kiplinger Washington Editors, Inc.
Learning Center content provided for informational purposes only. Northfield Bank does not provide tax or legal advice. Please consult your tax and/or legal advisors regarding your particular circumstances.
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