401k w/ graded vesting

[doze]

Think of this as extra money, my company 401K has no matching :frown:

If you can afford 12% then do it

 

[boomerang]

No matching here either. You almost have to do it. Just to save on taxes. I contribute up to the cap each year. Age-wise I'm eligible for catch-up contributions, but don't.

If I could start anew and my employer offered a Roth 401K, I'd do that.

 

[Evadman]

Why do people always ask this question? It boils down to 'Should I let my company give me free money?' There is exactly one argument against it, which is 'I need to put a percentage in too and I have bills to pay' That are gument is simple to argue against. Watch, lets add some math.

Most 401K's match some percentage to 5%. your 12% match is pretty good, which works out to 6% at 100% match for math. But lets look at a 5% match at 50% as that is more popular. Then lets look at someone who makes 25,000 a year as that is probably close to someone just starting out and going on the argument that 'I have no money' Lets further assume that your takehome pay is 70% of your gross rate. (30% for tax, medical, and such) which is also typical.

gross pay: 25,000
net pay without 401k: 25,000 * 0.70 = $17,500
biWeekly without 401k: 17500 / 26 = $673.00

Now, lets put in the max company match of 5%
Total going into 401k: 25000 * 0.05 = $1250
Gross pay: 25000 - 1250 = $23750
Net pay with 401k: 23750 * .70 = $16,625
biweekly with 401K: 16,625 / 26 = $639
Total amount in your 401k: 1250 * 1.5 (50% match) = $1875
Total amount your takehome pay was reduced: (673 - 639) = $34 biweekly * 26 = $884 yearly
amount of free money: 1875 - 884 = $991

There is no way you are going to notice $34 less on your check. even without a company matach,this is still awesome, because your takehome pay was $884 less, but you would have $1250 in your 401k. Hello! Free money!

Then, lets say you kept earning 25,000 a year until you retire, and kept putting 5% into your 401k, and your company kept matching at 50% of it. What would you have when you retire?

Amount you put in yearly: $1250
With Employer match: $1875
Yearly average of an investment: 10% (historical market average)
Start at 20 years old
retire at 65 years old
total years putting money into your 401k: 65-20 = 45
total you put into your 401k: 1875 * 45 = $84375
Total when you retire: $957,852

Yea, that's a lot of free money. So for $34 every paycheck you can have just under a million when you retire. So, tell me, is buying 1 less DVD and CD a week worth it?

 

[kranky]

Preach it, Evadman.

People just getting into the workforce need to understand how incredibly important it is to start saving early and jump on that company match.

 

[Blain]

Originally posted by: kranky
Preach it, Evadman.

People just getting into the workforce need to understand how incredibly important it is to start saving early and jump on that company match.

Preach it, kranky