As college students look to graduate, most are not thinking about retirement, said Lucretia Mattson, accounting and finance professor, but rather just focusing on getting a job.
Mattson, who teaches the financial planning course for seniors, said it is important to save for the future.
One way to do this is to choose a job that offers retirement benefits such as a 401(k) plan.
Bill Hilgedick, a financial adviser with Edward Jones, 101 North Farwell St., said there are many different plans to choose from and each employer may offer different benefits.
He said while different employers offer different packages, a 401(k) plan is basically money you set aside for retirement that your employer contributes to.
A major benefit to this plan is that it is a “pretax kind of investment,” he said, meaning that the money you set aside is not part of your taxable income and you don’t have to pay income tax on any money in the 401(k) until retirement or until it is taken out of the 401(k).
Senior Chase Brakke, a customer service representative with Xcel Energy has a 401(k) plan. He said his plan is an employer-matching program where his employer will match up to a certain amount of his paycheck.
He said he sets aside 5 percent of each paycheck, which automatically gets put into a 401(k) account. Then his employer matches the first 3 percent and pays 50 percent on the remaining 2 percent. That is to say, if 5 percent of his paycheck was $30, Xcel would match the first 3 percent ($18) and pay 50 percent on the remaining $12 to add another $6.
So besides the $30 set aside by Brekke, Xcel would contribute another $24 for a total of $54 which will remain in the 401(k) until he retires or takes it out.
“The deduction from the paycheck isn’t that bad,” he said, adding that he didn’t necessarily have to save the money for retirement if he needed it in the future.
Brekke said he originally opted not to take the plan when he first started his job because it was important to have that money on hand. Now he is glad he did and recommends other students to take advantage of such plans if they are offered by their employer.
Although Brekke said he only sets aside 5 percent of his paychecks, Hilgedick said to shoot for 10 percent of your total income for the year.
He added that some employers will require the employee to remain with the company for a certain amount of years before they will pay off the full amount. This way it benefits both parties.
“Some (employers) use (401(k) plans) to attract employees and retain quality employees,” he said.
He also stressed the importance of starting early when planning for the future.
“The best time to get that started is with your first paycheck,” he said, adding it is good to get into the habit of saving early on.
Mattson and Hilgedick said it is important to be financially secure because college students can’t depend on social security to take care of them once the baby boomers retire.
“There will be some sort of social security but not as we know it now,” Mattson said.
“We need to be saving for ourselves,” Hilgedick said. “To me the definition of financial independence … is to be able to live comfortably off of what you have saved in your lifetime.”
Hilgedick also said not to be bashful when looking at the different options offered by a company. Companies that offer 401(k) plans, he said, will have financial experts that are there to give people advice. He said to take advantage of them and choose the plan that suits you best.
Mattson said besides 401(k) plans it is important to look into other benefits offered by an employer including heath insurance and Roth IRAs.
“Utilize every one of the fringe benefits offered,” she said.
Hilgedick said it’s important to start planning for the future at a young age because you don’t want to wake up when you’re 40 and realize you haven’t saved anything and you have to make some major life changes.
“The longer you wait,” he said, “the more money you have to put away to accomplish the same thing.”
