Signing Up for That First 401(k)

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Is there a new grad in your household who is starting out on their first “real” job?

If so, you may want to share this story by personal finance columnist Michelle Singletary, writing for the Washington Post, as she talks about helping her daughter set up a 401(k) account on her first full-time job.

It’s a rite of passage. I had that same conversation with my 20-something daughter when she got her first “professional” job and became eligible to participate in her company’s 401(k).

It’s a conversation that you absolutely must have, especially with your daughters.

Here’s why:

We know that 401(k) enrollment information is not the most fascinating read. It’s far too easy for a young employee, in their first “real” job, to toss it in a pile and leave it unread. If their company uses automatic enrollment, they may get signed up anyway for the 401(k), albeit at a default contribution level that’s usually too small to move the needle. Without automatic enrollment, they may not contribute at all, wasting valuable time going nowhere when their money could be compounding.

Young women, in particular, are all too often absent when money conversations are taking place around the dining room table. By their young 20s, they are already far behind, compared to young men, when it comes to saving and investment balances. If they miss that early 401(k) window, they may never be able to catch up. Parents play a critical role in encouraging young women to take charge of their money decisions By talking to your daughter about why it’s important to sign up for her 401(k), you can start her off on a lifetime of good money moves.

With your encouragement, that next generation can step up and start taking responsibility for their own financial future. Pensions are a thing of the past, and Social Security may be scaled back for younger workers. Participation in the workplace 401(k) is now the lynchpin of retirement preparedness. It’s absolutely critical that young workers participate and save a significant percentage of their income – ideally 15% or more – to cover their future needs. No one else will save for them.

We are always available to set up a free consultation with our clients’ adult children to walk them through those key “on the job” choices and set them on a path to financial independence. By starting off on a strong footing, they’ll earn the self-esteem that comes with making responsible decisions and achieving success – on their own terms.

The Takeaway: Start a conversation with younger adults in your circle by sharing Michelle’s article on signing up for that first 401(k) or some of our articles on how women can take control of their financial future (you can also search our blog by topics – like “Women and Money” – for all articles written on that subject). Simply starting a conversation, and showing that money is something that it’s OK to talk about around the dining room table, can help the next generation get off to a solid start.

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