SO YOU DECIDED TO GIVE 3/4 OF A $$-MILLION TO A COMPANY WORTH $$-BILLIONS?
IT’S ALL ABOUT THAT MAGICAL 401K SILLY!
A powerful means to grow your wealth is accepting YOUR matching contributions from an employer into YOUR 401K plan. Employer matching 401K contributions means the employer contributes a certain percentage of your compensation to your retirement savings. Because it is YOUR MONEY/PART OF YOUR COMPENSATION, companies must budget these matching funds.
Approximately 15% of employees decline to open a 401K and hence decline the matching funds. Those employees are declining on average three to seven percent of their annual compensation. Because those dollars were in the budget, you just gave your company the money. And they thank you for being that generous!
I worked for multi-billion-dollar revenue companies most of my career. Why on earth would I choose to give them thousands of dollars that I EARNED. It’s MY MONEY.
SOME EMPLOYEES ARE GIVING AWAY UP TO $762,000.00!
The average employer matches four percent. If you make $65,000 annually, that is $217/month your employer adds to your 401K account. Majority of companies simply require you contribute the matching percentage, in this case four percent. The even better news, if you contribute four percent and the company contributes four percent, you have $5,200.00 at the end of twelve months. I don’t know about you, but I can use an extra $5,200.00 in my account – each year.
If you are just beginning your career and decline to contribute to your 401K, the below table shows how much money you generously gave back to your company at the end of 40 years. (FYI: You can retire much earlier if you take advantage of tools such as the 401K/ROTH-401K, IRA/ROTH-IRA and other investment vehicles such as real estate, etc. Read my blog and shave at least 10 years off that 65 retirement age! You can sign up now – I will wait!}
ASSUMPTIONS:
EMPLOYEE AGE 25; 40 YEARS TO RETIREMENT; $65,000 ANNUAL COMPENSATION; EIGHT PERCENT AVERAGE ANNUAL RETURNS
| EMPLOYEE CONTRIBUTIONS | COMPANY MATCHING CONTRIBUTIONS | TOTAL 401K BALANCE AFTER 40 YEARS | |
| TOTAL CONTRIBUTIONS/PRINCIPLEAT 40 YEARS | $104,001.60 | $104,001.60 | $208,003.20 |
| INTEREST EARNED AT 40 YEARS | $657,437.69 | $657,437.69 | $1,314,875.38 |
| TOTAL | $761,439.31 | $761,439.31 | $1,522,878.62 |
ACHIEVING FINANCIAL FREEDOM
The above assumptions kept your compensation flat for 40 years. Unless you happen to be among the worse employees in the country, your compensation will increase pretty significantly over 40 years. So your contributions increase each time you get a raise and promotion.
To achieve financial freedom, you need to stay employed and increase your contribution amount to your 401K periodically (I suggest minimum annually). For years, I and millions more of employees, contributed the maximum amount annually, $19,500.00 for 2020; with catch-up limit for an additional $6,500.00 for those 50 and older.
WHAT IF THE EMPLOYEE INCREASES THE SAVINGS CONTRIBUTION 10% ANNUALLY?
On a salary of $65,000.00 in year one he is contributing $217.00 each month. I refuse to believe you cannot afford to save $217.00 each month on an income of $65,000.00. STOP MAKING WEAK EXCUSES!
In the second year he would contributes an additional 10% meaning he adds an additional $21.70 {That’s about three Starbucks drinks!} each month or $238.70/month. Being intelligent, each year he increases his 401K contributions by another 10%. If his pay is increasing by two or more percent each year, the increases more than pays for the 10% increase in contribution amounts. NO MORE WEAK EXCUSES!
At the end of 40 long years of work, he now has over $6.6 Million. {You will be singing long before this point.} See Appendix 1.0
CONCLUSION
By starting early and taking full advantage of employer matching contributions, you will achieve financial freedom SOONER versus NEVER! Even if you do not have decades to save, start building your retirement fund TODAY! {Go ahead, just go to your company website, click HR/ER than click Retirement and sign up. I can wait.}
NEVER EVER decline to accept company match dollars! By maxing out your employer match, you will save a lot more than you thought possible (wait on it) and quit that J-O-B sooner than most!
{Note: There may be changes in the 401K plan depending who wins the White House and which (bought and paid for) party controls the Senate and House. Worry about that after the election and when the turtles in Congress actually come back from their numerous breaks.}
PREVIOUS BLOGS
DO YOU WANT TO JOIN THE 401K PLAN MILLIONAIRE CLUB? {KINDA OF LIKE THE MILE HIGH CLUB – BUT A LOT LONGER LASTING!}
401-K YEAR END SALE!
DO YOU WANT TO CRUSH THE MIDDLING 401-K INVESTORS? THREE FUNDS THAT’S ALL WE NEED!
ONE OF THE WORSE DECISIONS YOU CAN MAKE WITH A 401K WHEN CHANGING JOBS
APPENDIX 1.0
Pre-Retirement Assumptions:
Annual Salary: $65,000.00
Contribution: 4%
Employer Match: 4%
Current Age: 25
Retirement Age: 65
Return Rate before Retirement: 8%
Inflation Rate: 3.0%
Saving Increase Rate Each Year: 10%
Income at Retirement: Before Tax:
Total Value at Retirement before Inflation: $6,608,553.33
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ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life.  It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (small but brilliantly created plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financialadvisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.
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