Combing through my daily reading today, I came across a good article about how 401k's are regaining momentum and people are back to contributing to their 401k's, instead of pulling money out. Being a finance guy, I am amazed that a large percentage of Americans actually wanted to pull their retirement savings out during one of the lowest points in the stock market in the last century. The fact that we could buy stocks at 100 year lows should be enough inspiration for the general population to pump all the money they can in to their 401k's, but people panic. I'm happy to see that the general confidence in saving for retirement in a 401k is coming back. That's good for Americans and good for the financial planners of the country as well.
We as a society are not a bunch of savers in general terms. Americans love to spend and consume. The debt treadmill seems to be the norm in most American households. Are we in sight of getting rid of that philosophy? Many economists say that the rate of savings in todays' recession is in jeopardy of stalling the recession and not getting us out. That argument can be made, but isn't our household financial health more important, especially when we all got ourselves in to this mess in the first place?
The lack of spending, while creating less cash in the economy, is creating a safety net for middle class Americans to fall back on in times of need. I think this may be the best thing that could have happened to all of us. How long could we all continue to live or depend on our credit cards or home equity loans?
If you haven't set up your 401k at work, I encourage you to do it. The compounding interest is really amazing as it accumulates through your lifetime, especially when you start young. Check out this calculator here and see what I mean. I put in some general numbers that can give you an idea of how powerful this really is if you leave this money alone and keep contributing to it. Let's say you start off with $10,000, you contribute $5000 per year for the next 30 years (assuming you have 30 years to retire), you gain 6% average in compounding interest every year (that's conservative historically speaking), the interest compounds every month, and you end up with $480,866 when you get ready to retire. What could you do with that?
Have a great rest of your week!