NEW EMPLOYEE SAVINGS TIPS–

Time Is On Your Side

You’re starting a new job. Perhaps it’s your first full-time job or maybe you’ve been working for a

while. It may feel like there are many demands on your income: rent, credit card debt, school

loans, or car payments. Although it’s important to save for these short-term goals, remember to

save for your long-term goals as well. If you start saving now, the money will have years to grow

and you’ll have a better chance of being able to do all the things you want to do in the future.

Plus, by starting early, you will need to save a lot less later on.

1. Find the money and get started

Take a look at what you’re earning and how much you’re

spending. Put together a budget, and find some money to

put into savings. Some ideas are:

• Take your lunch, your coffee, or your sodas to work,

• Work some extra hours, get a second job,

• Give up cable TV, or skip happy hour.

But in the end, you have to decide how you’re going

to save and get yourself started. 

2. Take advantage of your employer’s

retirement savings plan

Workplace savings plans are the easiest way to save. 

If your employer offers a 401(k) or similar retirement savings plan, this is how it works: 

• You generally need to take the first step and sign

up for it. Sometimes, your employer will automatically sign

you up.

• Then you decide how much you will contribute from each

paycheck and where the money is invested.

• Often, there’s free money involved in a 401(k). The technical

term for the free money is an employer match – many

employers contribute to their employees’ 401(k) accounts

once the employee begins to put money in. If, for example,

your employer matches 50 cents for each dollar you

contribute, that’s an immediate 50% return. There is no other

investment that will give you that kind of guaranteed return –

don’t pass it up. Find out how much your employer match is

and how much you need to contribute to

get all of it. 

Some larger employers offer a

traditional, old-fashioned defined benefit

pension plan. In this type of plan, the

employer contributes the money, invests

it and pays a benefit to retirees based on

their pay and the number of years they

worked for the employer. For more

information, check out the resources at

the end.

3. Open an Individual Retirement Account (IRA)

Whether or not your employer has a retirement savings

plan, you can start saving in an IRA. An IRA is a personal

account that you set up with a financial institution, like a

bank or a mutual fund company. You can send a check to

the financial institution or have a certain amount deducted

regularly from your checking or savings account, or from

your paycheck.

Think about this:

Jennifer puts $1,000 into savings every year from age 20 to age 30, contributing

a total of $11,000. She stops, but she doesn’t spend it – she leaves it there.

Michael starts at age 30 and saves $1,000 a year until he is 64, contributing a

total of $35,000. 

But guess what. Jennifer’s account is worth more* than Michael’s at age

65, even though she put in a lot less. Why? Jennifer started earlier and

compound interest has longer to make her money grow.

*To find out how much more, see the chart on page 2. 

NEW EMPLOYEE SAVINGS TIPS–
These are a few tips to get you started. You can read much more in Savings Fitness: A Guide to 

Your Money and Your Financial Future, What You Should Know About Your Retirement Plan, and other

U.S. Department of Labor publications at www.dol.gov/ebsa or call 1.866.444.EBSA (3272).

U.S. Department of Labor Employee Benefits Security Administration

$160,000

$120,000

$80,000

$40,000

$0

Jennifer

Michael

Jennifer

Michael

amount contributed at age 65

There are two different types of IRAs, Traditional

and Roth IRAs, which offer different tax advantages. It’s

tricky to determine absolutely which one will provide the

greater tax advantages, so do some research and make

your best guess. The important thing is to get started.

There are income limits and limits on how much

you can contribute to an IRA each year. But for many of us

the problem is that money is tight. Keep in mind that you

can start with a much smaller amount and then increase it

later when you have more to save.

4. Learn about some basic investment choices

Whether you sign up for a 401(k) account at work or start

saving money in an IRA, you will have to decide where the

money will be invested. Many investors focus largely on

mutual funds, and if you are just starting to invest, take a

look at these two types of mutual funds: index funds and

life cycle funds. 

An index fund is a mutual fund that mirrors the

performance of some particular segment or part of the

stock or bond market. The fees that you pay can be quite

low because the fund manager plays a limited role. One

popular type of index fund, a Standard & Poor’s (S&P) 500

Index fund, tracks the stock prices of 500 large companies.

A life cycle fund is a mutual fund geared toward

investors by age. If, for example, you plan to retire

somewhere around the year 2045 you might choose a 2045

fund. The advantage of this type of fund is that it adjusts

the balance of your investments (usually stocks and bonds)

to fit your age and the number of years until retirement. 

5. Leave the money there

This may be the hardest part of all. 

When you change jobs or think you need some extra

cash – resist the urge to cash out these accounts and spend

the money. Instead, leave it there and watch it grow.

How much more will Jen have than Mike?

In this example, using a 7% interest rate, Jen has $20,601

more. Although the amounts will change depending on the

interest rate, the person who starts early and leaves it there

will always have the advantage.

RETIREMENT SAVINGS EDUCATION CAMPAIGN