Laura Dobbins, Magellan Health
I remember the day clearly. It was the summer of 2002, and I was sitting in the company conference room beginning to lose focus. At the end of the table was the representative from the company 401k plan, and he was there to encourage the latest new hires to sign up. One of those new hires was me.
The rep went into his well-rehearsed bullet points, mentioning the company would match 50 cents for every dollar we contributed, up to 6% of our salary, and the earlier we started contributing, the better. And that if we really wanted to get serious about investing in our future, that we should enroll in what they called “Auto-Acceleration”; a program that automatically increased contributions by an additional 1% each year.
I sat in that conference room playing a mental game of ping-pong back and forth in my mind, “Is it worth it? Will anything come out of this? Am I going to miss that money not being in my paycheck? I’m only 23, why should I worry about something so far in the distant future, like retirement?”
I was a little uneasy about investing in this “plan”, this mysterious “401k” they spoke of. It sounded as foreign to me as French at the time.
But even with my reservations, I did it. I opened my 401k account that day, and chose to put away 6% of my salary, to take full advantage of the company match, just as the rep suggested. I even enrolled in Auto-Accelerate. Then I crossed my fingers, and waited. Anticipating the pain of that first paycheck where I’d see 6% of my salary go to my 401k instead of my checking account.
To my shock and complete surprise, I didn’t feel the difference in my paycheck at all. My check only went down by $60. So I carried on, letting the contributions continue, and soon I even upped the contribution rate to 10%. Still didn’t feel it much. Over time, as my salary continued to increase, and my Auto-Accelerate bumped my contribution rate by 1% each year, I eventually reached the yearly maximum contribution, and I just continued maxing it out each year after that.
Now I’m 41. I look back to that day in 2002, and wish I could give my 23-year-old self a high five. I wish I could tell the younger me that I had just made one of the best decisions of my life.
That little account I was so unsure about starting 18 years ago, now has over $300,000 in it. And because I started slow and gradually increased my contributions over time, I never felt the pinch. Not once. And even if I stopped contributing right now, my 401k is on track to reach nearly $2 million by the time I reach retirement. At 59 ½, I’ll be able to access that money penalty-free, and enjoy the kind of retirement I see in my mind.
I picture leisurely days at home reading and relaxing, splurging occasionally on good food and wine, spending time with friends and traveling to destinations near and far. Resting in the knowledge that money will not be a source of stress.
But it pains me to think about what would have happened if I hadn’t started my 401k that day. I’ve imagined that too. What would that retirement look like?
Well, not good. More than likely I’d be working well into my 70s, living in a small apartment on a fixed income with no room to splurge on things I enjoy. No money to travel or dine out with friends and family.
That’s not living my friend, that’s existing. And I don’t know about you, but I want that time of my life to be my best years, not my worst.
Now imagine your future self. You’re looking back in time, thankful and grateful that you contributed to your 401k so many years before, while time was on your side. The cake has been cut, the “Happy Retirement” banner is coming down and you’re packing up your desk into a cardboard box, tingling with excitement for life’s next chapter. And it will be everything you hoped for.
What would you be willing to do to inspire non-participants to participate in the 401(k)?
Several years ago, convinced of how powerful a well-funded 401k account could be, I started a personal finance blog, MyShinyNickels.com. I've helped hundreds of readers change their financial outcome and reach savings and 401k milestones of their own. I've appeared on several podcasts, sharing my own 401k and finance success story, and I plan on continuing to motivate others to contribute to their retirement plans, even if I'm not selected as a 401k Champion!