The $140,000 Mistake: Why You Must Start Your 401(k) Today




If you delay starting your 401(k) by just 10 years (from age 25 to 35), you will lose over $140,000 in retirement value. This isn't a theory; it's the cost of lost compounding time.

What Is A 401(k)?

401(k) is an employer-sponsored retirement savings plan that allows you to contribute a portion of your paycheck. This money is invested and grows tax-advantaged. A 401(k) can either be:

  •  Traditional: Consists of pre-tax contributions (taxes paid later when you withdraw from this account)
  •  Roth: Consists of after-tax contributions (tax-free withdrawals).

How It Works:

 Following are the key steps you need to know to understand how a 401(k) account works:

  • First, you set a contribution rate (usually a percentage of your salary) which is automatically deducted from your paycheck.
  • Some companies offer an employer match, this is essentially free money added to your account (read our blog on employer matching to understand this)/insert link.
  • Next, the contributions are invested in mutual funds, ETFs, or other similar low-risk long-term investment accounts based on your choice.
  • The account grows tax-advantaged until you retire/withdraw.

Why Starting Early Changes Everything:

Even small contributions in your 20s or 30s can snowball into huge savings later on. This is because of a foundational concept in finance which is called compounding. Essentially, what happens because of the compounding effect is that firstly you earn returns on your savings then those returns start earning their own earnings later on. The earlier you start saving, the more time compounding has to work its magic and the greater your total savings will be in the future. The section below further illustrates the importance of this essential principle.

The Magic Of The Compounding Effect:

Suppose that you put just $100 a month in your 401(k) at age 25, by the time that you turn 65 you could have almost $262,474 (assuming 7% annual growth, a conservative historical average). But instead if you wait till age 35 to start saving, you’d end up with almost half of that i.e. $121,997, even though you invested for 10 fewer years. This is the power of starting early. Time does most of the heavy lifting rather than the amount of money you put in.


The Simple Move That Future Proofs Your Finances:

Don’t wait until your pay increases or when you have better understanding of investing. Remember, the hardest part isn’t math or the market, it is taking the first step. Once you take the first step, the system runs in the background while you focus on your career. Follow these steps now:

  • Log in to your HR/benefits portal and find your 401(k)-enrollment section.
  • Pick a starting contribution rate, aim for 3–5% of your salary if you’re just getting started. You can always increase later.
  • Check for employer matching to make sure you’re contributing at least enough to get the full match
  • Select an investment option. If you’re unsure, a target-date retirement fund (based on your expected retirement year) is the simplest hands-off choice.
  • Finally, set it and forget it. Your contributions happen automatically with each paycheck without any need for manual transfers or second guessing.

You Have Started…Now Don’t Miss the Free Money:

Getting started with your 401(k) today is the smartest money move you can make. Your most valuable asset isn't your income; it's your time. Start leveraging it today.


 


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