When planning for retirement, you have to consider the long game.
The post More Young Associates Should Contribute To 401(k) Plans appeared first on Above the Law.
It’s been a while since I wrote an article about personal finance, even though I started my column here at Above the Law over seven years ago almost exclusively discussing student loans and related subjects. However, I was recently discussing some personal finance decisions with friends, and it made me think of one of the biggest financial mistakes I made as a young attorney — one that I hope other lawyers will not make themselves. If your law firm offers an employer match to a 401(k) account, it almost always makes sense to contribute up to that cap to your 401(k) even if you have student loans or other related financial commitments to consider.
Of course, not all law firms offer employer matches to 401(k) accounts. I once worked at a small shop that did not offer any kind of match for employees who worked at that law firm for a short period. However, at the beginning of my career, I worked at a Biglaw shop that offered all kinds of employee benefits, including a 401(k) employer match. The employer match was not crazy high, but it was well into the four figures. Pretty much everyone around the office contributed enough money to their 401(k) accounts so that they could maximize the amount their employer would match.
However, I decided not to contribute any money to my 401(k) at that time, and so I did not receive any benefit of the employer match. At the time, I had close to $200,000 of student loans, and I was singularly focused on paying off this debt as soon as possible. About $90,000 of this debt had an interest rate close to 8%, so I reasoned that I might not make this return in the market so it made sense to defer retirement saving until after my student loans were paid off. Many people around the office pointed out that this was a bad strategy and that I was leaving money on the table by not contributing to a 401(k) plan with an employer match. However, I reasoned that the other workers did not know what it was like to live with crushing student debt and that my strategy was worthwhile in the long run.
I definitely regret this decision. Even if I could not make more than the interest rate of my debt in the stock market (which is a huge “if” considering the stock market has been on an absolute tear over the past decade or so) the additional funds available through an employer match would have made up for this. Moreover, the early years of a retirement strategy are far more important than later years due to compounding interest. I did not start saving for retirement until shortly before I turned 30, which is better than some people, but not better than people who start right when they begin their legal careers. Whenever I compare myself to people who started saving for retirement as early as possible, I am amazed at how beneficial that head start was toward building their nest eggs.
Young lawyers have many financial pressures, including student debt, the desire to save money to purchase a home, and other responsibilities. It might be difficult for first-year lawyers and other young professionals to think about retirement, especially since retirement seems far off, and it might seem like other goals should take priority. However, the value of saving for retirement cannot be overstated: if lawyers work for an employer that offers an employee match, contributing money to a 401(k) to receive the match should be a no-brainer. Failure to contribute money to benefit from an employer match leaves money on the table and can create a worse financial situation than if the individual opened a 401(k) account earlier.
Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at [email protected].
