Why you Should Have Started Contributing to Your 401(k) Yesterday

Contribute to Your 401 (k)

When thinking about retirement, it doesn’t matter if you’ve just entered the workforce or you’re well established in your career. One thing is true for all Americans: you must set yourself up for retirement. There are many reasons to do this, not the least of which is financial security when you become too old to work. Aging is a part of life we cannot stop or control; all we can do is prepare for it the best way possible.

One important way to prepare for retirement is to contribute to a 401(k), if your employer offers one. Assuming they do, it’s a smart idea to take advantage of said offering, both for your own future and the future of your family.

A 401(k) is a type of investment account. Here’s how it works:

  • Only an employer can sponsor a 401(k). Self-employed individuals qualify for other types of retirement plans based on their income and type of business.
  • You can contribute as much or as little as you want.
  • The money comes from your pre-tax income, or gross income.
  • You will not be taxed on your contributions until you withdraw your funds.
  • Your employer may elect to match your contributions.
  • Your 401(k) is not meant to be treated like a savings account.
  • Early withdrawals may be heavily penalized.
  • Your employer will invest your contributions into a fund which, in turn, will continue to grow just like any other investment fund.

There are many reasons to elect to contribute to a 401(k), and we will explore them here.

Tax implications

A 401(k) is a type of employer-sponsored retirement account. Your contributions come from pre-tax dollars, meaning you will not be taxed on the amount you contribute until it’s time to withdraw the money you’ve invested. Additionally, your contributions will slightly lower your adjusted gross income (AGI), which means, under certain circumstances, your tax bill may be lower than if you did not contribute to your retirement account.

Another tax benefit is that if you make contributions each pay period, it will reduce the amount of take-home pay you earn, which may, in turn, lower your overall tax bill.

No social security

According to recent estimates set forth by the Social Security Administration (SSA) itself, the Social Security trust fund is expected to be depleted by the year 2034. This means anyone who will be of retirement age after 2034 (anyone born after the year 1979) will need to prepare themselves for the fact that there will be no government stipend available to them in their retirement years, despite the fact that we have all been paying into it for our entire working lives thus far.

Even if social security is available to retirees, it’s rarely, if ever, enough money on which to survive and pay monthly expenses. So for anyone who will retire before 2034, it’s still a smart idea to have another source of income for your golden years. That’s why, even if you’re 50 years old, it’s never too late to contribute to a 401(k).


Adjusting for inflation is a smart idea when thinking about retirement. Things are already exponentially more expensive than they were just 50+ years ago. For example, in the year 1960, the median price of a home hovered somewhere around $20,000. Today, the median price of a home is well over $200,000. This means if you are just beginning your career, you will likely have another 40-50 years of work left before you’re able to retire. Imagine how much the price of a home will be then? Don’t forget to factor in the cost of things such as cars, medical care, electricity, fuel, and more. The prices of all of these things (which we all need, especially as we continue to age), will only increase with time.

Additionally, the federally-dictated interest rates, while still historically low, are expected to continue to increase over time, especially in periods of strong economic growth like the one we are currently in.

A 401(k) may not save you from 100% inflation, but it will certainly help mitigate the strain on your finite cash resources in your sunset years.

Other benefits

There are many good reasons to contribute to a 401(k) retirement plan starting yesterday. If your employer offers to match your contributions, that’s even more reason to sign up for a 401(k). Your account will grow without you needing to manage it; a designated fund manager handles that piece.

In addition to having your money grow at a steady pace, a retirement account will also allow you to have some spending money in your later years. Or, it could be your main source of income. You’ll be able to set it up as though it was actual income, and you can pay yourself a pre-set amount each month.

Another benefit, while not available to everyone with a 401(k), is the hardship withdrawal. If you fall upon hard times or are faced with dire circumstances, such as a major illness or other devastating financial issue, you may be able to withdraw your money early. Be warned, however: you will be heavily penalized for doing so.


A 401(k), or any type of retirement account, is vital to your retirement lifestyle. Failing to plan for retirement could lead to needing to work well into your golden years, the years you should be relaxing and reaping the rewards of a life fully-lived.

You don’t need to have excellent credit to open a retirement account. In fact, any eligible employee (your employer will inform you when you’re eligible) can enroll in a 401(k), and should. However, if you’re concerned about your credit or know you’re in need of credit repair, CreditRepair.com can help you learn how to take control of your financial future.


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