Congratulations, new graduate! Not only are you earning that diploma, you're starting your new job as well. You may be focused on the big picture and rightly so -- new job, new commute, new boss.
During your orientation you may hear about something completely new and foreign, like a 401(k) plan. Understanding your benefits and leveraging them are part of the package of managing your career and your life.
Understanding all benefit packages, not just the 401(k) plan, involves action. Get on the phone and ask questions. Medical and dental-benefit enrollment may have an expiration date, such as 30 days from your start date or by the end of the month. But retirement plans are optional and you don't have to invest right away. That's the kicker. Even though there's not a specific deadline, experts say you should create one for yourself so you can start investing today for your future tomorrow.
To millennials, retirement may feel like a world away. But according to Manisha Thakor, founder and CEO of MoneyZen Wealth Management, if you assume a 7 percent return on a dollar you invest in your 20s, that same dollar is worth five times as much by your 40s.
In practical terms, Thakor says you need to starting saving $5,000 a year starting at age 25 to become a millionaire by age 65. "If you wait until age 45 to start saving, you'd have to save five times as much -- $25,000 a year," she says. "If you weren't disciplined enough to save $5,000 a year, what makes you think you'll suddenly be disciplined to save five times that much in the future?"
Many may think they'll be able to make more money when they're in their 40s, the truth is they'll be spending more in their 40s too. Thakor suggests you make it a habit to start building a nest egg. "So, like flossing your teeth, the key is to develop the saving-for-your-retirement habit as early on in your life as you can."
Her advice? "Contributing 10 percent of your salary to your 401(k) is the ideal. Contributing at least enough to receive the company's full match is the bare minimum. Anything in between is a very solid progress. No amount is too small -- it all adds up."
As you contribute, take advantage of your employer's match. Wayne Connors, founder and chief portfolio strategist of the website 401k Investor, explains: "Your company's match is free money. By contributing at least 5 to 6 percent of your annual income you can earn a 100 percent gain on your money every year."
Something to keep in mind: If you delay that first payroll deduction to your 401(k) bucket, make sure you meet the deadline to contribute before the annual employer match. For instance, many companies have an annual date, such as April 1 or Dec. 15, when they kick in their portion. That's also significant to note if you plan to resign around that time frame. Why leave on March 15 without that previous year contribution by your company? Stick it out until April 1 instead. Find out the date and make resignation plans accordingly.
The earlier you contribute to a 401(k) in your career means the less time you need to work. Two words: Early retirement. "You could retire by age 55 if you contribute 10 percent annually," Connors says.
To illustrate this point, if your full match ends up being $2,000, Thakor suggests investing in a strong mix of stocks and bonds via a low cost target date retirement fund or index fund to earn a 7 percent return. "If you never get another dollar of matching money and you earn an average of 7 percent a year until you are 65 on those funds, you've just added $30,000 to your net worth in real dollar," she says.
And that's just the value of the first year match. She adds, "Similar magic (less one year of growth) applies to year two's match and beyond."
Vicki Salemi is the author of Big Career in the Big City and creator, producer and host of Score That Job. This New York City-based career expert and public speaker possesses more than 15 years of corporate experience in recruiting and human resources. She coaches college grads individually with an intense Job Search Boot Camp, writes and edits the MediaJobsDaily blog on Mediabistro, and conducts interviews as a freelance journalist with celebrities and notable names. BlogHer named her one of the country's top 25 career and business women bloggers worth reading.
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