The importance of starting a 401k sooner rather than later can’t be overstated. Believe us – your 60-year-old self will be more than grateful for your early 401k contributions. Here’s why.

Youth is wasted on the young, the saying goes. When you’re enjoying the salad days, you’re not aware of the luxury that is a full head of hair, wrinkle-free complexion and the ability to enjoy an abundance of free time.

You’re not aware of it until it’s gone, that is. This adage can be transferred over to a young person’s finances, too. 20-somethings often aren’t thinking about saving for retirement because their “golden years” seem to be impossibly far away.

Although millennials are saving more on average, two thirds of the demographic have yet to start any sort of nest egg. Not a good idea.

While the numbers vary based on your particular circumstance, it’s recommended that you replace 70-80% of your preretirement income to live a comfortable life after work.

What is a 401k?

A 401k is an employer-sponsored retirement savings plan, named after its spot in the federal tax code.

A 401k lets you deduct a certain amount of your paycheck to be invested into your future. Some employers offer a match that could double your investment. Don’t opt out of a match if it’s available.

There are two options for your retirement account. You can choose a traditional 401k or a Roth. With a traditional 401k, the money is pre-tax, so you’ll need to pay taxes on the earnings upon withdrawal. A Roth invests money that’s already been taxed, so you won’t need to pay the taxes when you take money out.

A Roth also lets you withdraw from your account after five years with no penalty. A traditional 401k, on the other hand, penalizes you if you take money from the account before you turn 59 ½.   

No matter which option you choose, having a retirement fund beats not saving at all.

Why Do I Need One?

Roughly 40% of Americans between the age of 35 and 64 aren’t expected to have enough money to retire. However, it seems that our saving habits are improving.   

Saying adios to the boss and planning a life free of work-induced stress to spend time with grandkids sounds great. But one needs to realize that expenses don’t stop just because work does. Ideally, you’d be off the hook for a mortgage by your 60s, but health insurance, utility bills and unexpected expenses are still unpleasant realities.

There are helpful online calculators to gauge how much you should be saving that takes into account your income, annual 401k deduction and age. Do some research to see what investment options are best suited for your particular situation.

And, if you don’t have a 401k option through your employer, check out an Individual Retirement Account. There are still ways to save if the traditional employer sponsored 401k isn’t available.

Nothing to Lose

Starting to save early is one of the best financial decisions you can make. Right now, employees under 50 can contribute up to $19,000 per year, and almost 100 million Americans have access to an employer-sponsored plan.

Even small monthly investments add up. If anything, at least take advantage of an employer’s match if it’s available; you can’t go wrong with free money. And if you’re not sure about your options, get in touch with your employer or a financial advisor.

There’s nothing to lose – aside from a small deduction in your paycheck – and much to gain by starting a 401k early.