We all want to keep more of our money and give less of it to Uncle Sam. Investing in a tax-deferred account, like the Northrop Grumman Savings Plan, ensures you are the first to be paid out of your paycheck. Surprisingly, most Americans who can take advantage of a tax-deferred retirement account don’t do it. According to the Employee Benefit Research Institute, a nonprofit benefit think tank, fewer than one out of four working-age Americans contribute to their 401(k) plans.

It Costs Less To Save Than You Might Think

Another advantage of tax-deferred investing is that you pay less income tax, so the actual cost to you of saving $200 a month is only $144. Hard to believe? Just look at this example of someone who earns $2,000 a month and wants to put 10%, or $200, into a 401(k) account each month:

Some people question the tax benefits of tax-deferred plans because the money eventually will be taxed when you take it out of the account. Here are three reasons that deferring taxes makes sense in the long-term for the average worker:

Maximize Your Contributions

As a participant in the Savings Plan, you may contribute between 1% and 75% of your eligible compensation in 1% increments. Although there are some restrictions for highly compensated employees, in general if you’re under age 50, your tax-deferred contribution limit for 2009 is $16,500.

Imagine if you contributed the maximum each year for the next 20 years. At an average annual rate of return of 8%, you would see your contributions grow to be $1,138,118, when contribution maximums are adjusted for inflation.

The bottom line: More of your money is working for you instead of going toward taxes when you invest tax-deferred in the Northrop Grumman Savings Plan.

This Investment Center includes links to tools and information provided by organizations that are not associated or affiliated with Northrop Grumman. The tools and information provided by these organizations are not the property of Northrop Grumman, and Northrop Grumman is not responsible for their accuracy, completeness, or continued availability. You are solely responsible for the investment and asset allocation decisions you make pertaining to your personal savings and investments, including investments in the Northrop Grumman Savings Plan, Financial Security and Savings Program, and any other savings plans sponsored by Northrop Grumman.