The Benefit of Time
by Shannah Compton

In the words of Rod Steward, "Young hearts be free tonight, time is on your side!" Or if you are an Earth Wind and Fire fan, "Time is on your side. No more need in runnin'. No more need to hide!"

Now that I have your attention, if you are under the age of 45 I want you to read this several times and memorize my message: Time is defiantly on your side! I am sure most of you have a 401K or an IRA, or maybe both. If you don't, please don't' hesitate to start one…even if you are self employed, particularly if you are self employed. These types of "tax-deferred" (meaning you put pre-tax dollars in and you are taxed on your withdrawals) savings vehicles work based on the magic of one word- COMPOUNDING.

The official Wikipedia definition of compounding is," Compound interest is the concept of adding accumulated interest back to the principal, so that interest is earned on interest from that moment on."

Let's see this in action:

Susan, age 34, currently has an IRA

= $226,393.58 at age 59 ½ (the year you are required to start taking distributions)

Sarah, age 30, currently has a 401K

= $1,214.047.44 at age 59 ½ (the year you are required to start taking distributions)

As you can see, the money starts adding up thanks to compounding.

Here are a couple of extra tips to make sure your IRA/401K is working for you:

  1. Double check your beneficiary designations (make sure the money will go to who you want it to, you can name relatives, spouse, charities, etc.)
  2. Make sure you are at least utilizing your company match (this is free money!)
  3. If you have left a company and still have your 401K with them, think about transferring it to an IRA where you might have a larger selection of funds to choose from. (Please consult with a professional on this to make sure it is done correctly as there are tax consequences if it is not.)
  4. Try to max out your 401K/IRA contributions every year, but if you can't, make sure you are still contributing
  5. Review your statements at least once a year, preferably with a financial services professional, to make sure your fund choices are performing well
If you have any questions about your 401K/IRA, please don't hesitate to contact me at shannah@slcinsuranceservices.com or 818-595-1167.

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