Your first 401(k): How to start strong and build wealth for the future

Here are eight ways to make the most of your 401(k) from day one (and beyond), with real numbers to show the difference your decisions can make and digital tools available to help you optimize your accounts.

1. Always contribute enough to get the match

Most employers offer a “match” — they’ll put in extra money if you contribute. Think of it as free money. At a minimum, contribute enough to get the full match.

Example: If you earn $50,000 and your employer matches 50% of your contributions up to 6%:

• You contribute 6% = $3,000/year
• Employer match = $1,500/year
• Total saved = $4,500/year

Over 30 years, with a 7% return, that could grow to about $441,000. If you skip the match, you’d only have about $294,000. A difference of $147,000+!

2. Save as much as you can early

Time is your biggest advantage when you’re young. Even small amounts add up.

• Save just 6% +match ($4,500/year) → About $441,000 in 30 years
• Save 12% + match ($7,500/year) → About $735,000

That’s the power of starting early and compounding.

3. Choose investments that match your age

Most 401(k)s offer stock funds, bond funds, and “target-date funds” (which automatically adjust over time).

Here’s why stocks matter when you’re young:

• Invest $4,500/year for 30 years in bonds (4% return) → ~$258,000
• Same amount in stocks (10% return) → $780,000
• A balanced mix (~7% return) → $441,000

If you’re in your 20s or 30s, leaning heavily toward stocks gives you more growth potential. Manage the asset allocation in your investment portfolio by periodically rebalancing your account to achieve risk and return objectives or invest in target-date funds.

4. Keep fees low

The less you pay in fees, the more money stays in your account.

Over 30 years, investing $4,500/year at 7%:

• Amount with low-cost fund (0.2% fee): ~$410,000
• High-cost fund (1% fee): ~$356,000

That’s a $54,000 difference just from fees. Always look for index funds or target-date funds with low expense ratios.

5. Don’t touch it until retirement

It can be tempting to withdraw money or borrow from your 401(k), but taking money out early means losing decades of growth.

Withdrawing early not only triggers taxes and penalties but also kills compounding. For example, cashing out $10,000 at age 25 could mean losing about $76,000 by age 55 (assuming 7% growth). A loan may feel safer, but while that money is out, it’s not compounding.

Think of your 401(k) as untouchable — your future self will thank you.

6. Increase contributions over time

If 6% feels like the most you can afford now, start there. But whenever you get a raise, bump it up 1%. Many plans let you automate this.

For example, if you start at 6% and increase by 1% a year until you hit 12%, you could add an extra $224,000+ to your retirement balance by age 55.

7. Stay consistent through market ups and downs

Markets go up and down, but history shows staying invested pays off. If you had invested $10,000 in the S&P 500 in 1993 and left it alone, by 2023 you’d have $153,000. Miss the 10 best days, and you’d have just $71,000.

Don’t panic during downturns — your younger self has time to ride it out.

8. Use digital tools to improve portfolio management and decision-making

Reviewing and adjusting your 401(k) at least once a year is a crucial step in ensuring your retirement savings are on track. There are various digital tools ranging from simple online calculators to comprehensive software and robo-advisors that automate investments and provide personalized financial analysis:

• Calculators and planning tools. Many financial institutions and websites offer free calculators and tools that can help you project your retirement savings and plan for the future. If you prefer the flexibility of using spreadsheets, DIYmoneytrack.com offers content, including playbooks and free worksheets, to help you establish and monitor your path to financial independence.
• Financial planning software and aggregators. These platforms offer a holistic view of your finances by linking all of your accounts, including your 401(k).
• 401(k) plan-specific portals and apps. The provider of your specific 401(k) plan (e.g., Bank of America, Vanguard) will have its own digital tools for participants.
• Specialized 401(k) management software. Some companies offer tools specifically for managing and optimizing 401(k)s that are held with a different provider. Third-party DIY financial and retirement planning applications combine individual and optional advisory services (e.g., Boldin), and some can be used for free to optimize your employer-sponsored 401(k) retirement plan accounts (e.g., Plootus).

Add it up

The contribution and investment choices you make with your 401(k) can result in dramatically different financial outcomes for your retirement. To illustrate the magnitude of these choices, I prepared an opportunity costs analysis comparing two scenarios for each decision above (shown in the chart below).

401(k) opportunity costs worksheet download

Final thoughts

Enrolling in your first 401(k) is one of the smartest financial moves you’ll ever make. Start by contributing enough to get the match, avoid high fees, and increase your contributions over time. As your 401(k) investment portfolio grows, periodically review and adjust to manage your risk, maintain diversification, and ensure your portfolio stays aligned with your retirement goals.

It Pays to Know!

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Past performance does not a guarantee future performance. The information contained in this post is not a recommendation to buy or sell specific securities.