My son is finally eligible to participate in a 401(k) plan through his employer, and of course he came to me at Thanksgiving dinner for advice. First important message: a 2% withholding from your paychech may sound like a lot of money out of the paycheck, but it really isn't. The withholding for a 401(k) is taken out before taxes. so for most people a 2% reduction in gross pay will only be about a 1.3% reduction in net pay. On a $500 paycheck, that's only $6.50 less pay. You will see the change, but just barely. One fewer meal out will cover it. This also means if you have the choice to have 3% or 5% going to your 401(k), think very hard about doing so. A 5% reduction in pretax pay is about $17.50 less in the paycheck.
When you get to be retirement age, that 2% withholding will be worth about $99,000, assuming a 7% growth of your 401(k), or $346,000 at a 12% growth rate. A little little less spending now [roduces enormous returns in the future.
Conservative. Idaho. Software engineer. Historian. Trying to prevent Idiocracy from becoming a documentary.
Email complaints/requests about copyright infringement to clayton @ claytoncramer.com. Reminder: the last copyright troll that bothered me went bankrupt.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment