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man stressed about finances
By Paul Bajus
• Apr 5, 2021
Head of U.S. Contact Centers
TD Bank, AMCB

Why a 401(k) is an important step on the path to financial stability

I met my first mentor, Lorrie, when I was 22 and just starting out as a phone banker in credit card customer service. Lorrie was a brilliant, compassionate people leader, who never shied away from sharing her wisdom for the betterment of her team as colleagues, but also as individuals. She had a knack for connecting the dots in meaningful and interesting ways – a talent I've tried to hone, now that I lead a large team of amazing people.

As I look back on the many lessons learned, one stands out more than any other as the most important: taking full advantage of your 401(k) benefits.

Back then, I came up with every excuse as to why I couldn't contribute to my retirement plan, but Lorrie was relentless. You always hear why it's so important to contribute early and often in your career, but as they say, youth is wasted on the young.

Over the years, she gently prodded me, and I finally gave in just before my 28th birthday and have continued to contribute to my future ever since.

I've watched my 401(k) grow into a resource I know my family and I will rely on after I finally decide my working days are behind me. Don't get too excited, that's a long way off!

As I've gotten older, I've also come to realize the profound impact that Lorrie had on my life, but I've also realized what the pigheadedness of my youth has cost me.

The Magic of Compounding Interest

There's a very weighty thing at play in your 401(k) or any retirement fund and it's called compound interest.

Albert Einstein said it best when he said, "Compound interest is the greatest invention that the world has ever produced."

Basically, compound interest is interest earned on top of interest when you reinvest and don't cash out your investment. Since most don't cash out their 401(k) for many decades, the reinvested interest builds and builds.

Had I listened to Lorrie when she first started counseling me, I would have likely contributed about $9,000 over those six years.

Now, are you sitting down?

What's amazing is that through the power of compounding using a 7% annual rate of return, that $9,000 would have turned into $131,000 by the time that I retire. And that's just my contributions; add in the employer match and that's almost $250,000!

Talk about a costly blunder! My stubbornness will cost me almost a quarter million dollars less in retirement because I couldn't "afford" to contribute when I was younger. And by continuing to save throughout my career, my contributions along with any company contributions could be worth much more!

So, if your company offers a 401(k) plan, take it from me (and Lorrie) – If you're not contributing, you're missing out on a tremendous opportunity to build wealth and prepare for your retirement.


For more information about TD's retirement products and services, visit https://www.td.com/us/en/investing/.

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