My Money Tree
Retirement Planning For Recent College Grads
So you’ve survived college. You head out into the working world with your fresh diploma in hand and land a plum job making more money than you could’ve ever imagined. Your first instinct is to go get that big screen TV or plush ride that you’ve been eyeballing for the past year. After all, why not? You’re making the cash now, you can afford it, can’t you? But wait. Before you take the plunge on that big ticket item, practice that old safety adage they taught you way back in elementary school about crossing the street: “Stop, look and listen.” Stop.
So you’re finally making a little bit of coin, good for you. But don’t make the mistake of many of your peers and splurge on a big purchase. If you’re a recent college grad new to the working force, odds are you have credit cards to pay off and the burden of student loan repayments to deal with. Do you deserve to be rewarded for surviving years of boring lectures and countless all-night cram sessions? Sure you do. But your first order of business should be getting out of debt, followed shortly by investing in your future.
Look. That new job can offer you more than just a nice paycheck. Along with health insurance and other fringe benefits, most employers today offer generous 401(k) plans. As soon as you’re settled into your new cube or office, head over to your human resources department and sign up for your company’s 401(k) plan—it’s the most important thing you can do when planning for your financial future. I know what you’re thinking, “retirement is a long ways away, why should I deal with it now?” Much of your generation feels the same way. In fact, a recent study found that almost 70 percent of workers ages 18 to 25 don’t contribute to a 401(k) plan. Don’t be one of them. The sooner you sign up, the more money you’ll make in the long run. Most employers will match your contributions up to a certain percent. Contribute to that number, declining to do so is the same as refusing free money.
Listen. Okay, so you’re contributing as much as you can afford into your 401(k). Congratulations, the hard part is over. Next up, you’ll have to decide how to invest. It can be confusing, but when you sign up, usually a financial representative will guide you through the steps. When contributing to a 401(k), you’ll be investing in a mix of stocks and bonds. The trick is in selecting the combination that is right for you. History shows that while stocks are more volatile, they usually show higher returns over the long term. However, there’s no sure way to predict that what has happened in the past will happen again in the future, that’s why it’s important to insure yourself by investing in bonds, as well. Bonds, while typically not showing the same high returns as stocks might, have shown to be a solid—albeit slower—investment strategy.
To make the wide world of investing a little less confusing, most employers offer index funds and target funds designed with different age groups and investment strategies in mind. But choosing how to invest is nowhere near as important as investing in the first place. Get that money automatically deducted from your paycheck and into your 401(k) account now. Trust us, you won’t miss it.
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