Retirement Planning and 401k Matches
Posted by jefferson on Jan 18, 2013 in Saving Money | 46 comments
That last time that I talked about retirement here on See Debt Run, I was concerned about quality of life. I wrote that “I don’t want to eat dog food when I retire“, using an extreme example to show that I want to spend my sunset years living at the same quality of life that I have now, if not better. I want to travel the world, see the most beautiful sites that this planet has to offer, and enjoy life through and through. I don’t look forward to a time in life when I can do nothing, instead I look forward to a time in life that I can do whatever I want.
Is this type of retirement going to be a reality for most people out there? I truly have no idea, but I do want it to be a reality for Michelle and I. Many of those in the personal finance community write often of their desires to “retire early” and put a large focus on efforts to accelerate this effort. I applaud this, but realize that this isn’t going to be my path. I will likely need to have a few million dollars in my retirement account before I can confidently step away from the workforce. Considering that I have three children that I will need to put through college in the meantime, it will likely take working well into my 60′s before that can become a reality.
Looking at my retirement account today, I have nearly $60,000 stashed away in a 401k, with another $5000 in a traditional IRA that was carried over from a previous job. Considering that I have been in the workforce for nearly 12 years, these numbers are significantly below where they need to be. I will say that I certainly plan to have my house paid in full well before I hit retirement age, which should help.
The company that I work for made a change in their 401k matching benefits this past year, and I suppose it is overall a good thing. In years past, they offered a 2x match on the first 1% that you put into your retirement (effective after your first year of employment). After that, they would match the next 3% of your salary dollar for dollar. The net effect of this was that if you put 4% of your salary into your 401k, the company would put a “matching” 5% in as well. Pretty sweet, indeed. Anything you put in past that first 4%, would not get a company match.
This year, they changed the program and eliminated the 2-for-1 on the first 1%, and instead changed the program so that the company will match up to 6% of your salary 1-1. The net effect of this, is more free money, so I certainly cannot complain. But I do have to put a bit more money in, in order to take full advantage of the match. It is positively foolish to turn down a 401k match, if your company offers one, so I bumped my contribution from 4% up to 6% on January 1st. Because of this change (and the increase in payroll taxes that also went into effect at the beginning of the year), we have had to adjust our budget a bit, but I think we are starting to get the hang of our new flow.
Going forward, contributing 6% of my salary (doubled) to a 401k is going to leave us well short of our retirement goals in the future. We are going to have to do more. When we are debt free in a few months, we will have a better cash flow to pour into these scenarios, which will open up a new world of possibilities. We will likely be looking to setup an annuity through a company like My Pension Expert, or instead look to open a Roth IRA to take full advantage of the tax benefits. Either way, we plan to attack our retirement planning with the same ferocity and dedication that we have used to attack our consumer debt.
46 Comments
Leave a Reply
eBook with Michelle & Jefferson for only $4.99!
As Seen On
About Us
Designed by Nuts and Bolts Media | © 2013 See Debt Run
Business
I think you’ll be ready for retirement with no problem based on your planning. I’m playing catch up now but it can never match the power of longevity.
Kay Lynn recently posted..31 Days to Better Health: Lose that Shaker of Salt
Thanks Kay.. I hope so!
Wow that is awesome that your employer is increasing your retirement benefits! I think it was a good move by them to change the format. It should help many people increase their savings.
Lance @ Money Life and More recently posted..How Federal Tax Rates Work – Not What You May Think
I think that the move by my employer to try to encourage folks to invest as much as possible to their 401k is absolutely a step in the right direction!
I am making the change next week to take advantage of my employer’s full match. It is not as generous as your’s, but I will take it.
Grayson @ Debt Roundup recently posted..Weekly Personal Finance Blog RoundUp – 1/18/2013
Smart move, Grayson. You can’t turn down the free money!
I’m very jealous. Our employer used to offer what you have now (100% match on the first 6%) but it got cut a couple of years ago to nothing, and they still haven’t brought it back. We’re owned by a venture capital fund, and I suspect until that changes, it won’t be on the table as all they care about is maximizing dollars, no care of the effect on employees.
Michael @ So You Think You Can Save recently posted..Enjoy Quiet Time
Oh.. that is a shame. The 401k match is a huge perk and really pushes people towards starting to take their retirement seriously.
Good job increasing your 401k contribution! You should consider upping the contribution to the max once your debt are paid off. I know it’s not as nice when the company doesn’t match, but the tax saving can be significant as well. If you company offer Roth 401k, that might be even better considering your long horizon.
Midlife Finance recently posted..Where Will You Live When You Retire?
Yeah.. That is basically our plan.. Take the full match, and then fully fund a Roth IRA (for both Michelle and I).. after that, we plan to pour as much as possible into savings accounts (leaving a bit for home repairs and a family vacation)..
I know you mentioned the ROTH IRA option, and I am a big fan, but unless you think your tax bracket is going to go up in retirement you are generally better putting money into a traditional IRA. Like I said before I am a big fan of the ROTH and use one myself for tax diversification, you know just in case.
Also remember, while you want to pay for as much of your children’s education as possible, they can borrow for school, you can’t borrow for retirement (I know reverse mortgages exist, but they are not very practical).
I know, Brian.. I make that same point about not being able to “borrow” for retirement as well.. We definitely are making that saving a priority.
It’s funny. You talk about being behind (and I agree that you probably are). However, when I met with people as an advisor, you are well ahead of most people. Most people are totally screwed.
AverageJoe recently posted..Joe’s Top Movies of 2012
While we are a bit behind, Joe.. I feel that we are clearly on the right path. Once we have zero debt (and it will happen in 6-7 weeks), we will be right there.
Once you guys have the debt monkey off your shoulder, it’ll be much easier to put more toward retirement.
Also, does your 401K have an auto increase? We can set ours up so it automatically increases by a percentage or two each year. That’s how I increased ours up to where we’re almost maxing all of ours out. Increasing it just a bit each year meant the blows were easier to take budget-wise. =)
Mrs. Pop @ Planting Our Pennies recently posted..How We Fought Our Real Estate Tax Appraisal and Won – Part 2
I do have that auto-increase option, Mrs. Pop.. But don’t currently have it enabled. It is a good idea however, to think about doing that. In the past, we were really stuck in a paycheck to paycheck treadmill, and that extra 1% hurt.
The match is great. And I think it is a great nudge for all the employers to increase their contribution. My husband’s company’s 401k sucks. They have a total of 10 mutual funds, all managed. We just put enough to get the 50% match up to 5% of the salary and have everything in the lowest cost fund. I am counting on starting to contribute to an IRA (for both of us) to catch up and build enough for our retirement.
Suba recently posted..How to get cheap prescription drugs and save money on medications
Our Fund options are actually pretty weak, but I am not going to complain to much, because the match is so great.
Way to get that full match! I wish my company even offered a match–any match!
The Happy Homeowner recently posted..Friday Link Love: Roommates, Gold and Princesses
Yeah.. I wish that all companies offered something like this.. Because it would help nudge folks everywhere into caring about their own retirement. It is hard for almost anyone to turn down free money.
Great career boosting your 401k share! You should look at upping the particular share towards the max the moment the debt are generally paid back. I am aware it’s quite a bit less wonderful when the firm doesn’t go with, nevertheless the tax protecting might be major likewise. In the event you firm present Roth 401k, that could be best of all contemplating ones long horizon.
The tax benefits are great too Swift Code.. and it can also keep you from skipping up into the next tax bracket if you are on the border.
Sound to me like you’re doing wonderfully: You’re increasing your retirement savings, and going gangbusters on debt reduction. You’re scores ahead of most Americans. Here’s another link I found this week that gave more thoughts about increasing retirement savings: http://www.fivecentnickel.com/2013/01/14/supplement-your-nest-egg-with-sweat/
Laurie recently posted..Healthy Hearty Pancakes
Thanks Laurie!.. It certainly feels like we are on the right path, and moving there quickly.
Many people dream of early retirement, picturing more time for family, travel or hobbies. But the decision to retire early is not one to take lightly. There are many financial and lifestyle issues to consider. Here are just a few.
Hilda Booker recently posted..No last blog posts to return.
Hilda.. I agree. But many folks who don’t plan properly end up spending their retirement scrounging and waiting around for their (admittedly tiny) Social Security check.
How wonderful of your employer to offer such a generous match. My employer offers less than $1000 per year and many employees don’t take advantage of it. I am too cheap to let even 1 free penny go and there is no way I would miss any match. I think about the employees with 20 years service who could have $20,000 of free, tax sheltered income that they said no to and I am stunned.
You are well ahead of the majority of savers and your goal will seem very achievable when you are done with debt.
Jane Savers @ The Money Puzzle recently posted..Do As I Say, Not As I Do
Thanks for the encouragement Jane.. I agree that leaving money on the table is just not an option..
You are right to take advantage of the employer match. My employer took 8% of my gross salary out to put in my retirement, and they matched that amount after a person worked there 5 years. After 12 years, I walked away with a hefty retirement considering what I put in.
Melissa recently posted..Healthy Food Deals & Deals for Kids – January 19, 2013
That is a great deal at 8% and about the highest that I have heard of!!.. Of course, having to wait 5 years to qualify is quite a long time.
My employer doesn’t do a match, but instead puts 6% of your yearly salary (after two years of employment)into a 403B. It’s a pretty generous set up for a non-profit from what I’ve heard. I know I need to do more for retirement, but bf and I are focusing on buying real estate as an additional retirement strategy.
KK @ Student Debt Survivor recently posted..Survivor’s Standouts 1/20/13-Back to School Edition
For a non-profit.. That is pretty awesome. I haven’t heard of a 403b previously..
Wish I got a match on my 403b, since I am a Public School Teacher I am not eligible for a match. I can’t understand why anyone would not invest at least up to the employer match, it’s throwing away free money if you don’t!
Paul @ The Frugal Toad recently posted..How to Turn Savings from Everyday Purchases into Wealth
Absolutely Paul.. I understand that government jobs have their hands tied a bit when it comes to these type of benefits. In some ways, I am lucky to work in the private sector.
If you do attack your retirement savings the same way you attacked your consumer debt, I have no doubt that you’ll be able to retire and live the way you want once the time comes. Yes, having three kids to put through school does take a toll, but you have all the knowledge and tools to be successful in building a retirement fund that will allow you to live the life you want to live.
Kelly@Financial-Lessons recently posted..College Tuition in Other Countries vs. The U.S.
Thank you Kelly.. You are an awesome cheerleader! We do absolutely plan to attack retirement the same way that we have attacked our debt repayment.
That match is great. My employer is pretty generous as well — they offer a 4.5% contribution, and then a 5% yearly lump-sum contribution as well, regardless of how much we put in.
Having $60k after 12 years of working may not seem that great, but you are definitely ahead of most people, that’s for sure.
Mike @ Personal Finance Beat recently posted..Jim Cramer’s 10 Lucrative Themes for 2013
If the market continues to grow, that 50 grand will look pretty nice here in a decade or so! Your match is quite awesome, btw!
Hi there this is a very great blog! Thank you so much for sharing this to us! Keep it up!
Thanks Connie!.. What a sweet note!
Looks like you have planned so well. Retirement should indeed be an opportunity to do things you want and go to places you like after so many years of hardwork.
Sarah Park recently posted..How to Become a Neuropsychologist
Absolutely, Sarah.. I want to spend my retirement doing whatever our hearts desire.
I just started reading your blog today and it is very inspiring! I am actually on a budget plan and working two jobs but I still feel like there is no end in sight. I’m 25 and have a goal of being debt free by 30 (I have around 37,000 in debt) and starting a ROTH IRA. It is very frustrating because budgeting makes you so eager to make more money so you can over come your financial burdens faster. I work for a law firm that offers no benefits or 401K so I’m in the process of finding another job. Retirement is important to be me but I feel like I don’t know enough to start investing in it? I want to retire early and not end up like my parents who wasted away their retirement because my dad made bad financial decisions (my motivation for saving every penny). After my debt is paid, should I start throwing a ton of money towards an IRA or what? Can I get a 401K without going through my employer? If you have a chance to respond, could you e-mail me with advice? I would greatly appreciate it! Love your blog!
-Stephanie
Thank you for the kind words, Stephanie! From what I have been told, you are far better off pumping money into a Roth IRA, than into a 401k without a company match. But if I were in your shoes, I would certainly go full boar to get rid of your debt before jumping in to your retirement savings. The interest payments are truly burden-some, and it will be tough to meet any of your goals until you can get there. But I know that you can do it, we are living proof!
Thank you!!
You’re plan for retirement looks pretty good. I think you will achieve your goal on time. Best of luck, Jefferson!