The typical employer match 401K retirement plan will look something like this:
Your company will match up to 3% of what you earn towards your retirement plan or 401K. Some companies will do slightly more or less, but 3% is typical. This means that if you are contributing 3% of what you earn towards your 401k your company will match that 3%. So out of your paycheck you will be giving up 3% in order to have 6% of your paycheck go towards your retirement. So you would definitely want to make sure you opt in to any retirement plan that your company has that will match your contribution. That is just free money.
So where does that money go? That money is going to go into your personal 401K. That money is then going to be invested into a fund where it is going to be invested so it can grow. You will have to check with whoever your company invests with, but Vanguard and Fidelity are two of the most common names you will hear. Your money will be invested into a specific mutual fund. That fund will have a ticker symbol that looks something like (VINIX). You can follow that symbol to see how your money has been growing over time.
How does that money grow? I have a lot I want to explain about the legality and terms of a retirement plan, but right now I want to give you an idea of how your money would grow over time. In order to get an idea of what your retirement could look like I have a tool in this excel file that I have made. It is just a snapshot of what would happen over time if you were to keep investing the same amount into your retirement. You can play around with the number me at the top to get a picture of what a certain retirement plan would look like. I encourage you to personalize it to what you want your retirement picture to look like.
This spreadsheet gives a simple snapshot of what retirement savings would look like for someone who is making $40,000 per year and saving 6% of their income by utilizing their 401K. The 8% interest is just to use a baseline. I suggest you look at what your retirement fund has done over the past 10 years and use that as your interest rate.
If you look at the results you will see that just by investing $2,400 a year and starting at the age of 22 someone can save nearly $1,000,000 for their retirement. However, if that same person were to wait until they were 32 years old the retirement savings goes down to just over $400,000 at the age of 65. In order to save as much as the person that started at age 22, the person that starts at age 32 would have to save over $5,800 per year. Well over twice as much as the person that started earlier. This illustrates the importance of saving for retirement early in life. It is common for people to think that they will be in a better position to save for retirement later in life, but it is very important to start early.