Why Patience Pays in 401(k) Saving

A new survey from the Employee Benefits Research Institute and reported in the found that 0.2 p

ercent of 401(k) participants have reached $1 million in savings in their 401(k) plans. They keys to this success? Consistent saving over at least 20 years and contributing high amounts – if possible, the maximum annual amount allowed (this year it is $17,000).

Certainly, not everybody has the means to save $17,000 a year. But what is more important is being consistent with a smaller amount. That means not going into panic mode and withholding contributions to your account when the market tanks (see my

analysis of the 2008 crash and a 2011 follow-up). Of particular importance is saving enough to receive your full employer match (if your employer matches your contributions). Not doing this is like turning down a pay raise. And don’t forget the tax advantages of saving in a regular tax-deferred or Roth 401(k). For more discussion on working toward a secure retirement, see my publication on common mistakes made by savers.

I may sound like a broken record (or a scratched DVD) on the topic of retirement saving since I have written about it many times, but this is why I do: regardless of what Congress does to Social Security now or in the future, personal saving is an absolute necessity to a secure retirement and one of the areas in which we as individuals have some control. Happy saving in 2012!


Comments (13)

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  1. Brian says:

    People also need to factor in the compounding effects of inflation on their retirements savings over time. From what I’ve gathered, people should start saving early and make wise investments that will gain them compound interest.

  2. Joe Barnett says:

    By starting to save young, however, an individual may earn interest for more than 46 years before retirement on some savings. Consider that if a dollar of savings takes 14 yearts to double, a dollar saved at age 22 would grow to more than 3 dollars by retirement.

  3. Ksenia says:

    Annuities are (very gaelrelny) a bad idea unless you are already old, or you are the agent selling them. (They pay terrific commissions to the salesperson!) A Roth (invested in growth or growth income stocks) will make you far richer later on

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