There’s no greater financial safety net than Social Security. Regardless of it’s faults, every year it helps hundreds of thousands retired people to thrive  in their retirement years. But the Social Security program was never meant to be the only income source for retire people. In fact, that’s why the 401k plan was created. It was a way for the federal government to encourage people to save money for their retirement years by giving them certain financial incentives.

But what is 401k plan? A 401k program is a retirement investment plan available to employees of companies. The company administrates the plan but employer and employee both are allowed to add funds to the plan. The all important, and huge, reward of a 401k plan is that you are able to invest using pre-tax dollars.

What this means is that the money that you set aside for the 401k is invested into the plan prior to it being taxed. Also, the monies are able to persistently earn tax-free interest on your contributions until you withdraw the money - typically at retirement. And even then, only the money that you withdraw from the fund is taxed. Presumably, since you’ll be at a lower income level when you retire, the amount of money that you will be taxed will be lower as well.

Many companies lure workers into joining their organization by touting their ample 401k packages. In more pleasing economic times, it was not unusual for an organization to match the contribution of the employee with an equal amount of their own money. So if you kicked in a hundred dollars to your 401k plan, they would kick in another hundred dollars. This in effect gives you a 100% profit on your money even before your investments kick in. In the current recessionary economy, however, those generous packages have become more difficlut to come by. But even without that benefit, if a 401k plan is offered by your employer, you should take advantage of it.

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