It's Never Too Early to Start Saving For Retirement

Thursday , January 25, 2007

Marshall Loeb

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NEW YORK —

College students in the Class of 2007 have a lot more to celebrate than just their impending graduation. The job market for college recruits is shaping up to be the strongest since the downturn earlier in the decade, the Wall Street Journal reports. In fact, according to the National Association of Colleges and Employers, this year employers plan to hire 17 percent more grads than they did from the Class of 2006.

And as these 20-somethings enter the work force in droves, it can be tempting for them to eschew 401(k) or other retirement plans for everyday expenses and paying down student debt. A bit of advice for the soon-to-be grads (and recent grads, as well): Don't do it. Save for retirement as soon as possible.

Carrie Schwab Pomerantz, chief strategist for consumer education at Charles Schwab, offers the following reasons for saving for retirement starting with your first full-time job:

The tax benefits are great. Most grads will fall into the 25 percent tax bracket (roughly $30,000 to $60,000 in annual taxable income). If that's you and you make a $1,000 contribution to 401(k) account, you're only sacrificing $750 of take-home pay. And you won't pay taxes on the money you invest until you withdraw it 30 to 40 years from now.

Many employers offer "free money." They'll match anywhere from 25 percent to 100 percent of your investment into a 401(k) account. That means you can turn each dollar you invest into up to $2. Never turn down the opportunity for free cash.

Time is on your side. Even if you invest a small amount now, it can become a substantial asset with the passage of 30 or 40 years. As Schwab puts it, "The power of compounding puts a premium on starting young."