A career is a long and arduous road. When you to choose to become a lawyer or journalist or marketer or nurse, you can count on challenges throughout your working life. And you can count on needing to put aside money for retirement as well. You can do that with a Roth IRA or a traditional IRA, if you want to go after it on your own or you are self employed.
There are other options. if your company offers it, you might want to start contributing to a 401K. And you want to do it as soon as you start working. The reasons for that are many. First of all, the earlier you begin to save in your 401K, the more time that your money has to grow. Compound interest is your friend. Get to know it well and you will be financially healthy.
Getting started can also be a psychological boost. When you feel that sense of achievement and maturity as you start saving, it can motivate you to get in better financial shape overall. You can begin to make a lot of choices to save money and create a better cushion for yourself later in life. Starting a 401K is a big part of that.
If you company offers a match you need to start taking it. There is no better option than that. It is essentially free money. When your company matches your contribution, you can make more over the long term, because your nest egg grows and the compound interest is growing on a bigger chunk of money.
A 401 K offers a huge amount of tax advantages. In a lot of plans, your contribution comes right out of your paycheck before taxes, so your tax bill will be lower at the end of the year. And you will most likely be on a lower tax bracket when you retire, so you will be saving then as well.
Once you are saving in your 401K, you can let your plan administrator pick what stocks, bonds or mutual funds to invest in. Or you can take more control and make a move towards learning about investing yourself.
You need to know about your account and your asset mix. When you have a 401K, it makes sense to invest in stocks and mutual funds made of stocks. Those assets tend to outperform cash and bonds over the long term. And your retirement horizon is all about the long term. As you get closer to your retirement, you can move your assets to a more conservative mix. That allows you to lower your risk profile as it gets closer to your time to take advantage of the account.
The bottom line is that it is very important to begin saving for retirement as early as possible. A 401K from your company may be your best route, since they can match your contribution and give you a leg up over saving for others.