Taking the mystery out of the 401(k)

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GRAND LEDGE, Mich. (WILX) - Kaylee Kean says she has a hard time when it comes to saving her money.

"I am really bad with financial things,” Kaylee Kean said, “I feel like naturally I'm just not good with money."

But she'd still like to have enough for retirement one day.

She's got a shot because Kean just started a new job with access to a 401(k) plan. She's interested in trying it-- but she's nervous--because 401(k)'s can be complicated.

"They're very confusing yes,” Kean said. “There's just a lot. And when it's your first job it's hard to figure out where to start and what to do and who exactly to go through."

Financial adviser Rich Michaels says a lot of people are in the same boat as Kaylee. His advice is don't let being scared stop you from saving money.

"The most important thing is just do it,” Michaels said. “Don't be afraid and don't put it off."

He says the first step is to ask your HR person at your work how you can sign up. Sometimes companies may not let you start one until you've worked there for a certain amount of time. After that they should be able to help you, but some of the paperwork can still be a little confusing.

"If the paperwork doesn't make sense that your employer gives you, ask,” Michaels said. “Don't be intimidated."

Let's say we do start a 401(k), let's breakdown how it works. You get to choose a certain amount of money from your paycheck that will go into the retirement plan.

"Don't think of it as they're taking money from your paycheck, because it's in an account that you're going to get back," Michaels.

You don't pay income tax on that money until you take it out again. That money then gets invested into funds which are kind of like a group of stocks. You get to choose which ones to invest in. Michaels says if you're unsure to ask your adviser.

"Ask them for help, guidance in where to allocate that money,” Michaels. “It's based on a lot of things. Your age. Your risk."

That money will grow over time. And let's say it's growing fast. Really fast. Michaels says don't take it out before you're 59 and a half because you'll have to pay a penalty tax and your income tax.

"You don't want to touch it,” Michaels. “Please don't borrow from it. You leave that money alone. Let it grow until you're older. Then you're gonna be able to retire. And have something to fall back on."

Michaels says it's never too late to start your plan.

"And remember that's for your retirement and the government isn't gonna be there for you down the road as much as it was for our parents. We need to take care of ourselves."

Michaels says it's best to not look at your statements every day or even every month because you may be shocked the money is going down.

He says talk to your adviser if you're worried that you're losing money.