Up next in our Glamsplaining retirement series is the power of contributing to your retirement plan early.
We hear lots of excuses for not contributing to your employer-sponsored retirement plan but the most common excuse is the lack of disposable income. We would argue that retirement contributions should be viewed as a bill so that you make sure to pay your future self...and there should be nothin' disposable about that!
Also, remember that contributions to your plan are made pre-tax, unless you are making Roth contributions which are after-tax. This means that a $100 contribution to your plan does not translate to a $100 reduction in your paycheck. If you are in the 24% tax bracket (In 2019 you make between $84,201 - $160,725 and are single or between $168,401 - $321,450 and are married and filing jointly- yeah the IRS loves to rub it in if your single!) a $100 pre-tax plan contribution reduces your pay by about $72 for that period. Note that this does depend on your deductions, pay periods and a few other details so don't trip if we are a little off. Determining the impact of your retirement contribution on your paycheck is easy. There are tons of paycheck impact calculators floating around on Google.
The cost of putting off what you can save today is more than you may imagine. Check the chart below. If you begin contributing $381 a month to your plan at age 25, you will have $1 million dollars by the time you reach age 65 - assuming a 7.9% investment return. However, if you waited until age 45 to begin contributing to your plan, you would have to contribute $1,920 a month to reach that same goal and if you waited until you were 55 years old you would have to save $5,778.
