27 Jul How can I convince my daughter to save in her 401(k)?

Q. My daughter just graduated from college and will be starting a full-time job in August. She will have a 401(k) plan. How much should she save in it to start? She will still be living at home and saving money for her own apartment, which is her first priority. I’m telling her the retirement money is just as important. What do you think?
— Mom

A. Congratulations to your daughter on her graduation and new job.

It’s great that she’s saving for her own apartment, but you’re right that when it comes to saving for retirement, the earlier, the better.

Seeing paycheck deductions for the first time can be a bit of a shock to the system, said Bill Connington of Connington Wealth Management in Paramus.

He said he recently sat down with his own daughter to go over all the deductions from her pay.

“She was surprised by the fact that Social Security was taken out,” he said. “I explained why, and then we discussed the time value of money and how important the sooner she started saving for retirement, the better off she would be.”

He said given that your daughter is still living at home and saving for her own apartment, it would be good to sit down with her and show her how a traditional 401(k) contribution will lower her taxable income. Then show her how her money will grow, he said.

“Show her the take home pay if she was to contribute, say 5% to start, with a company match, and then compare with a 10% contribution with the company match,” he said. “Then she can make an informed decision about what works best for her and how it will help her to see how retirement assets will grow when they start early.”

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This story was originally published on July 27, 2022.

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