Decades after Ted Benna invented the 401(k), the “father” of the retirement savings account discussed Tuesday the key to making the plan work: start early.
“There’s people who make tons of money who don’t become successful at saving, and then there are others, surprisingly, who shock the heck out of me — they don’t make big bucks but they have substantial savings,” Benna said at an event run by The Wall Street Journal.
“The key is learning early in life what you’re going to be,” he explained.
401(k) plans, unlike traditional pensions, are retirement plans in which employees contribute a percentage of their earnings (pre-tax) into an account that companies often contribute to via a matching amount (to a certain percentage). But the 401(k) can suffer – or enjoy – the benefits of the market, depending on the market’s volatility.
“You’ve got to make a decision if I’m going to put 1 percent of my pay into this, and then maybe every time you get a pay increase you bump it up,” Benna said Tuesday. “Everyone can do that.”
He also urged people to honestly evaluate their spending habits to determine where money could be saved.
“Even at my age now, I have a difficult time paying $3 or $4 for a beverage,” he said. “It just pains me. Paying $6 or $7—forget it.”
Despite the fact that about half of Americans are participating in a retirement plan at work, most people are falling behind in contributions, Fox Business previously reported.
According to a study from researchers at Stanford Center on Longevity, most American workers aren’t on a path to be able to sustain a full-time retirement by the age of 65.
Fox Business’ Brittany De Lea contributed to this report.