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unless you have alot of dough to buy enough stocks to create your own mutual fund you trade fees on funds for excessive individual company risk for stocks.
for most small investors the fees end up being the better choice.
usually an earnings report misses by a nickle ,the stock plunges, inexperienced investors jump ship and lose money. buying individual stocks is not for the ill-informed laymen..
Preface: Assume you're dealing with an idiot, though I attempt to not be.
Many articles online make the 401k out to be this evil thing that you'll never be about to count on for retirement. However, when I plug my numbers into a financial calculator, I think I'm missing something. For example:
Age: 30
Company match: 100% up to 6%
Contribution: 15%
Retire age: 60
Starting salary: $60,000
Salary increase per year: 4% * I'm guessing at this but factoring in promotions, cost-of-living increases, etc, this seems reasonable?
401k performance: 7.00%
Total amount in 401k at 60th birthday: $1,906,136
How is this not a retire-able amount? I base these numbers on my current 401k's performance -- maybe I'm estimating high? Even if I drop the retire age to 55, that's still $1.2 million, plus whatever is in savings and other investment options, if anything at all.
Basically... what am I missing here?
It is extremely wise to put in up to the 6% to have it doubled with the company match. However, the other 9% of your contributions could probably find the same investments with a lower fee in an IRA. That is, if you can discipline yourself to send it there.
The biggest knock on a 401K is the higher fees. For example, the fees for a S&P 500 Index Fund: my 401K 0.53%, my IRA 0.07%....it might not seem like much, but that 0.46% difference will eat thousands more out of my 401K fee over the course of decades. Still wise to do the company match though.
It is extremely wise to put in up to the 6% to have it doubled with the company match. However, the other 9% of your contributions could probably find the same investments with a lower fee in an IRA. That is, if you can discipline yourself to send it there.
The biggest knock on a 401K is the higher fees. For example, the fees for a S&P 500 Index Fund: my 401K 0.53%, my IRA 0.07%....it might not seem like much, but that 0.46% difference will eat thousands more out of my 401K fee over the course of decades. Still wise to do the company match though.
it really depends on which funds you are comparing. I utilize the same fidelity funds both in my 401k and outside of it. some are as little as .20% difference.
It is extremely wise to put in up to the 6% to have it doubled with the company match. However, the other 9% of your contributions could probably find the same investments with a lower fee in an IRA. That is, if you can discipline yourself to send it there.
The biggest knock on a 401K is the higher fees. For example, the fees for a S&P 500 Index Fund: my 401K 0.53%, my IRA 0.07%....it might not seem like much, but that 0.46% difference will eat thousands more out of my 401K fee over the course of decades. Still wise to do the company match though.
If your IRA is funded with post-income-tax money then the difference in fees is swamped by the income taxes you paid NOW.
A decent 401K with employer match is a fantastic way to save for retirement. Unless Congress dismantles the tax advantage of a 401K, you automatically start with ~20% more to invest. Add the employer match and you are off to a great start. Invest smart of course or you can ruin it all.
Assuming equal amounts,tax brackets,and gains the bottom lines for post and pretax will be the same.
Paying the taxes up front or at the end will yield identical results.
if anything you will have slight edge on the 401k with pretax dollars since over time more and more money goes through at lower rates.
people get this wrong because they pay the taxes up front with money from outside the investments as opposed to the 401k where they attempt to pull all taxes due from within the investments.
Last edited by mathjak107; 12-18-2013 at 08:25 AM..
Preface: Assume you're dealing with an idiot, though I attempt to not be.
Many articles online make the 401k out to be this evil thing that you'll never be about to count on for retirement. However, when I plug my numbers into a financial calculator, I think I'm missing something. For example:
Age: 30
Company match: 100% up to 6%
Contribution: 15%
Retire age: 60
Starting salary: $60,000
Salary increase per year: 4% * I'm guessing at this but factoring in promotions, cost-of-living increases, etc, this seems reasonable?
401k performance: 7.00%
Total amount in 401k at 60th birthday: $1,906,136
How is this not a retire-able amount? I base these numbers on my current 401k's performance -- maybe I'm estimating high? Even if I drop the retire age to 55, that's still $1.2 million, plus whatever is in savings and other investment options, if anything at all.
Basically... what am I missing here?
You're missing just about everything - you won't get 7% consistently, you won't get 4% raises every year, your employer *will* cut their contribution (and possibly even your employment) at the worst possible time, and it's pretty certain that the government and their banker masters will be coming after those piles of 401k money incessantly over your working career. It's too "juicy" of a prize - the politicians are *going* to want to tax that money, the bankers are *going* to want to steal a cut.. And bankers and politicians look out for themselves before they'll look out for you.. How many bankers went to jail for trashing the economy last time? none?! Angello Mozillo settled with the government and paid the biggest fine ever assessed for his shenanigans, but didn't have to peel a single dollar out of his own pocket.. (insurance!) http://articles.latimes.com/2010/oct...o-sec-20101016
I see a bunch of posts here insinuating that anyone who doesnt trust corporate 401k's as wearing a tinfoil hat, but every corporate 401k I've seen to date has been just awful - at best half-a dozen mediocre funds to pick from, with fees that are both disclosed and undisclosed.. many of those funds are manipulated by our corporate banker-masters on deposit-day ( the insiders know when fidelity buys stock, and prices go up on those days)..
I'm not saying not to take advantage of a *substantial* corporate match up to that match level, but not a nickel above it, and only as part of a plan to diversify your savings in multiple areas - you need some property, a little gold, an IRA that *you* can control, and a real bank-account to smooth over when your employer goes boom.
most will still have far more with the forced savings of the 401k vs left to their own discipline outside of it.
Somehow that money always finds another use once it isn't taken out automatically.
This is so true, which is why you should set up your 401k from your initial paycheck. If you never see it, you won't miss it.
If you have direct deposit, some banks/credit unions will allow you to make automatic deposits to a secondary savings account, so as long as you took that money and plunked it in an IRA at regular intervals, that might be a solution.
If you can't afford to put more than the employer match % into your 401k immediately because of other obligations (like student loans, credit card debt, saving for mortgage, etc) but you would like to increase your % eventually, consider increasing your 401k % whenever you get a raise. Again, it's the principle that you won't miss what you never see.
It depends how much you want to invest. The 401K or 403B you should always invest at a minumum what ever gets you the full employer match.
You could do this:
do the amount that gets you the biggest bang for your buck, as in the 6%.
Invest in a Roth IRA but remember that the max is $5,500 I think that you can invest.
After that jump back into the 401K where it maxes at $17,500 I think.
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