By Edward Jones

If you’ve graduated from college in the past year or so and started your first job, you’re no doubt learning a lot about establishing yourself as an adult and being responsible for your own finances. So thoughts of your retirement are probably far away. And yet you have several good reasons to invest in your 401(k) or similar employer-sponsored retirement plan.
First of all, by contributing to your 401(k), you can get into the habit of regular investing. And since you invest in your 401(k) through regular payroll deductions, it’s an easy way to invest. Furthermore, your 401(k) or similar plan is an excellent retire- ment-savings vehicle. You generally contribute pre-tax dollars to your 401(k), so the more you put in, the lower your taxable income. Plus, your earnings can grow on a tax-deferred basis. Your employer might also offer a Roth 401(k), which is funded with after-tax dollars; although you can’t deduct your con- tributions, your earnings can grow tax-free, provided you meet certain conditions. And with either a traditional or Roth 401(k), you generally have a wide array of investment options. But perhaps the main reason to start investing right away in your 401(k) is that, at this point of your life, you have access to the greatest and most irreplaceable asset of all– time. The more time you have on your side, the greater the growth potential for your investments. And by starting to invest early in your plan, you can put in smaller amounts without having to play catch-up later. Suppose, for example, you begin investing in your 401(k) or similar plan when you’re 25. For the sake of simplicity, let’s say you put in $100 a month, and you keep investing that same amount for 40 years, earning a hypothetical 7 percent rate of return. When you reach 65, you will have accumulated about $256,000.

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