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Marino on Money: May 6

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In this economy, investing your money may seem tough, but it’s not impossible. Today, financial planner Ross Marino discusses the importance of 401(k) plans.

Today let’s talk about investing $500 with little risk. Is there another way to receive an instantaneous, guaranteed return on your money, other than paying off debt? That’s a good question. There’s only one other way I know of that is close. It’s taking advantage of a match in your 401(k). If your employer offers such a match, you defer money into your 401(k), and eventually, your employer puts in a match. Sometimes the match is immediate. If your employer offers 50 cents on the dollar, that means you receive a return of 50% on any deferrals that are matched. If your company matches up to 6% of your pay, then you could receive a match equal to 3% of your pay. That’s a 50% return, on your money. If your match is dollar for dollar, it represents a 100% return on your money. As soon the money is in your 401(k) account, it is guaranteed, meaning, it’s your money, not the employers. Keep in mind, the investment options within your 401(k), carry different levels of risk. I am just talking about the employer match, not the investment options.

Does a 50% or 100% return, on a portion of your money sound good? Here’s another way to look at it.

In today’s economy, most people are happy just to have a job or own a business. But how would you like a raise? If your company offers a match, then simply participating in the 401(k) is like getting a raise. If your company offers a 3% match, it’s like getting a 3% raise that is deposited into your retirement account. I am constantly amazed, at how many people have the opportunity, and can afford, to invest in their company-matched 401(k) plan, but do not participate.

A match is free money. Which means, free money! Just wanted to clarify that. You don’t need to work harder. In some cases, the match is all yours, even if you leave the company right after you received it. In other plans, you earn the match over the course of a few years. That is called, vesting. But whatever you call it, it’s free. Your employer has decided to offer you a match, and based on my experience, they really want you to take advantage of it. I speak regularly with companies that offer 401(k) plans, and they want their employees to save for their retirement. Offering a match is one way they try and help you do this.

Of course, if you don’t bother to save money for retirement, you can always count on Social Security. Right?

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In this economy, investing your money may seem tough, but it’s not impossible. Today, financial planner Ross Marino discusses the importance of 401(k) plans.

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