I was reading another thread in this forum and it sparked a question I had about employer matching retirement benefits.

Currently, my employer gives 1% to my retirement even if I do nothing. They then match 100% on 3% and 50% on the next 2 %. The two combined give me 100% on 5%. After that they do not match. I am already fully vested in the money I have earned.

My question is, I currently put 5% of my pay in my retirement, should I be putting more? I am not going to get matched on any more, so is it worth it? I have my own personal Roth IRA that I could put the same money into, so I guess I would need to look at which account has a better return, right?

What would you guys do? I think I can put up to 12% of my pay in retirement, again they will only match on 5%.

ive heard a general rule of thumb is to only contribute what they match, as it is free money, but generally you have more choices elsewhere.

You've nailed it: put money first into the 401k up to the match, then go to your Roth IRA. If you max out the Roth, then go back to your 401k until you are saving 15% of your gross annual income into retirement. That's YOU saving it. Company contributions don't count.

You're on your way.

Thanks for the input. My financial goal this year was to start putting enough money into my Roth to max it out. I'll see how that goes for a little while and then will reevaluate my retirement.

As with most or all financial questions, the answer depends.

Remember, the 401(k) contributions are 100% tax deferred. That may serve you better right now. It could depend on how much you're trying to put away. If you want to maiximize earnings in the early part of your investing life, use the 401(k). If you're at a later point in your work life, use the Roth.

Just a thought. Again, you need to decide what your goals are and then decide how best to use your tools to reach those goals.

--Wag--

I am only 23. I have had the Roth open since I was 19, but have not contributed much to it.

So it is a general rule to put more into my 401k when younger and then Roth when older? Is this true? I am not doubting you, just making sure I understood you correctly.

I am only 23. I have had the Roth open since I was 19, but have not contributed much to it.

So it is a general rule to put more into my 401k when younger and then Roth when older? Is this true? I am not doubting you, just making sure I understood you correctly.

I'll give that a qualified 'Yes.' Give it about 10 years to really start moving upward before you start working on a Roth. Again, however, talk to a licensed financial advisor (your company plan administrator can point you to a guy who will talk to you for free).

The thing is, the 401(k) is pre-tax money. A lot of times, people will only put in what the company matches because they feel that's the only return they will get. But the reality is, they've forgotten about the pre-tax factor which benefits them too.

Here's a question for you: How much control do you have over the investments in the 401(k)? Is it going into a well-diversified portfolio of mutual funds which YOU can then move around as you wish? Or are you only able to put it into some company stock and some other ill-performing, high fee investment products? If you don't know, find out.

If it's the former (good diverse investments) then I would recommend the 401(k) but if it's the latter (company stock primarily) then I would consider using the Roth for everything you can.

Again, talk to a financial planner.

(Damn, I wish I had had these kinds of options put in front of me when I was your age. I'd be retired by now.)

--Wag--

I actually work for the federal government, so my 401k is called the TSP (Thrift Savings Plan). They are pretty much the same thing. There is not company stock that my 401k can invest in. It is a set of mutual funds/bonds that I can freely move my money around at any time I wish. I can control the following things:

1. What % of my pay goes to my TSP (right now 5%).
2. When I do put money in the TSP, what % goes to each fund.
3. How much of my current total account (not future contributions), do I want in each fund. This allows me to move money as I gain interest back into less risky funds like bonds to basically lock it in. I am not doing this because I am young and feel I should be on the risky side right now.

They do provide lifecycle funds in addition to other mutual funds. There are not a whole lot of funds, but from talking to various people, the account managers for the TSP apparently tend to do very well.

You can view their different funds at www.tsp.gov

I wanted to touch on the point of pre-tax. I understand what pre-tax is because I can see it in my paycheck. However, I will have to pay taxes when I start receiving money from this account when I am older, correct? So we are assuming that the amount I am making in interest must be more than inflation and increase in taxes combined for me to make out in the end, is this true?

I am not doing this because I am young and feel I should be on the risky side right now.

Music to my ears. You actually seem to "get it" when it comes to saving for retirement.

They do provide lifecycle funds in addition to other mutual funds. There are not a whole lot of funds, but from talking to various people, the account managers for the TSP apparently tend to do very well.

You can view their different funds at www.tsp.gov (http://www.tsp.gov)

"LIfecycle" or "Lifestyle" funds are, in my opinion, a great way to go. I absolutely LOVE the concept for those who really are not interested in taking a daily interest in their investment. Pick a couple which suit you and your goals and allow you to sleep at night and I think you've got as good a thing going as you can get without doing your own stock selecting. (FWIW, the L 2040 looks very appealing.)

. . . I will have to pay taxes when I start receiving money from this account when I am older, correct? So we are assuming that the amount I am making in interest must be more than inflation and increase in taxes combined for me to make out in the end, is this true?

This is true. However, inflation is a permanent evil in investing no matter what you use to invest in. What that means is, you can throw that variable out of the equation and still be comparing apples to apples. It bears paying attention to it, however, when you consider whether or not ALL of your earnings are being dissolved by inflation as with a passbook savings account (which is NOT an investment, btw).

Taxes can only be avoided entirely by investing in government issued bonds, T-bills, etc. etc. I doubt that there are any available in the TSP plan thought I didn't review it that thoroughly. Just guessing because you can't mix taxable and non-taxable dollars in a retirement investment vehicle. At least, it wouldn't make sense.

So, I ran a comparitive scenario, just for giggles.

The mandatory assumptions: 200.00 monthly pre-tax contribution, 8% annual return, 30 years of investing, 25% tax bracket ($150.00 monthly contribution).

Using pretax dollars, you invest $72,000.00 over 30 years and the account is $226,000 at the end of that time.

Using after tax dollars ($200.00 less $50.00 in taxes), you invest $54,000 and the account is $170,000 at the end of 30 years. Bottom line, is, you had $18,000 LESS money to invest.

Another way to say it is, you had an additional $56,000 at the time of retirement. That will cover at least a part of your taxes for you. Another way to look at it is, you paid $18,000 less in taxes over the years and now have $56,000 extra to play with once you retire.

In other words, put the extra $50/month into something else like your Roth account if you want a little extra push. Bear in mind, though, if you put the extra $50 into your tax-deferred account instead, you're getting that little extra push from it. (BTW, the $226,000 becomes $282,000 with the extra $50, in case you were curious! THAT is something to get jazzed about.)

Compounding is so entirely magical, you really have to play with the numbers in a spreadsheet because they are, indeed, so unbelievably amazing. If you learn to use Excel and learn how to calculate the numbers, you'll blow yourself away.

Any other questions, let me know.

--Wag--

Do what I said. TSP up to the matching percentage. Then Roth IRAs into good mutual funds with very long track records. A financial advisor can help you set these up and you can do a lot worse than your local Edward Jones affiliate. The Roth IRA is TAX FREE. All growth (which will be 1 million+ dollars) - never taxed again. There's no power out there that can match it - except for the "free money" of the match Uncle Sam is giving you. Get that first, then get the Roth, then go back to the TSP until you max that Bad Boy out or you're saving at least 15% of your gross income toward retirement.

The 3 mutual funds of interest in your TSP program are the "C", the "S" and the "I". The C fund is a "common stock" fund that mirrors the performance of the largest 500 companies in the U.S. - the Standard and Poor's 500. So it's an "S&P500 Index Fund". The S fund behaves the same way, but it mirrors the "Russell 4500" which is the index that tracks the performance of 4500 smaller companies. So it's a "Small-Cap Index Fund". The I fund again behaves the same way, but it mirrors the "Morgan Stanley Europe, Australasia, and Far East" index - the index that tracks the performance of companies in those areas. So it's a "International Index Fund".

If it were me, I'd put 50% in the "C" fund, and 25% each in the "S" and the "I" funds, that way, I'm spread out over very large American companies, as well as smaller companies and international companies. A meltdown in any one of those will not panic me as it may not affect the other two at all and may actually help. This is called "diversification" - spreading your money around reduces volatility and risk.

I'm not a fan of "LifeCycle" funds simply because they tend to put way too much money in bonds and cash (too conservative) and also tend to move you aggressively away from stock funds way too early (again, too conservative).

I am only 23. I have had the Roth open since I was 19, but have not contributed much to it.

So it is a general rule to put more into my 401k when younger and then Roth when older? Is this true? I am not doubting you, just making sure I understood you correctly.
Just seeing this now. Personally, I'd go the other way round after getting the max employer match. The Roth lets you go tax free on your earnings. If you're contributing a hefty some and letting it earn interest for 40 years, I'd say the tax savings at retirement will prob outweigh the current tax savings. That's just a guess though.

You really need to have a good idea of how much you're saving, how much you expect to have at retirement, and how much you'll be taking in distributions to answer that question. You'll also have to work on the assumption that tax rates and laws don't change significantly in the next 40 years. Another reason the Roth seems like a safer bet.

With a few minor differences of opinion, I have to agree with what Dorkfish said above. The mechanics of what he wrote above are worth doing.

Do it.

The only thing I would add is PLEASE review your accounts periodically and adjust your investing profile if necessary.

Go forth and conquer!

--Wag--

My promotion becomes effective this Sunday which gives me about a 20% pay raise. On top of that, I just paid my car off 3 months ago and my bike will be paid off next week, so not more auto payments.

That gives me a decent amount of money each month to work with, so as soon as I get the realistic figures of my new pay on my first paycheck after promotion, I will be adjusting my saving accordingly.

I appreciate all the insight and words of confidence from everyone here. I am excited about learning more about investing/saving and I am sure this isn't the last question you'll here from me.

Thanks again!!

Above all, educate yourself. Noboedy gets the education they need on finances while they're in school so you ultimately have to do it yourself.

Be patient and save as much as you can. At your age, Social Security very likely will not exist for you.

--Wag--

At your age, Social Security very likely will not exist for you.

--Wag--

I said thanks for the words of encouragement and then you throw this in :( But I know what you mean, better to be safe than sorry and there is no way you can depend on Social Security

I said thanks for the words of encouragement and then you throw this in :( But I know what you mean, better to be safe than sorry and there is no way you can depend on Social Security

Actually, that's the exciting thing about it! You don't HAVE to rely on a system that is already bankrupt and will be shitcanned before you can take advantage of it.

Dude, I'm completely jazzed that we can take responsibility for our own retirememt needs without relying on that corrupt system.

Rethink that and don't be depressed, boss! It's a good thing!

:D

--Wag--

Music to my ears. You actually seem to "get it" when it comes to saving for retirement.



"LIfecycle" or "Lifestyle" funds are, in my opinion, a great way to go. I absolutely LOVE the concept for those who really are not interested in taking a daily interest in their investment. Pick a couple which suit you and your goals and allow you to sleep at night and I think you've got as good a thing going as you can get without doing your own stock selecting. (FWIW, the L 2040 looks very appealing.)



This is true. However, inflation is a permanent evil in investing no matter what you use to invest in. What that means is, you can throw that variable out of the equation and still be comparing apples to apples. It bears paying attention to it, however, when you consider whether or not ALL of your earnings are being dissolved by inflation as with a passbook savings account (which is NOT an investment, btw).

Taxes can only be avoided entirely by investing in government issued bonds, T-bills, etc. etc. I doubt that there are any available in the TSP plan thought I didn't review it that thoroughly. Just guessing because you can't mix taxable and non-taxable dollars in a retirement investment vehicle. At least, it wouldn't make sense.

So, I ran a comparitive scenario, just for giggles.

The mandatory assumptions: 200.00 monthly pre-tax contribution, 8% annual return, 30 years of investing, 25% tax bracket ($150.00 monthly contribution).

Using pretax dollars, you invest $72,000.00 over 30 years and the account is $226,000 at the end of that time.

Using after tax dollars ($200.00 less $50.00 in taxes), you invest $54,000 and the account is $170,000 at the end of 30 years. Bottom line, is, you had $18,000 LESS money to invest.

Another way to say it is, you had an additional $56,000 at the time of retirement. That will cover at least a part of your taxes for you. Another way to look at it is, you paid $18,000 less in taxes over the years and now have $56,000 extra to play with once you retire.

In other words, put the extra $50/month into something else like your Roth account if you want a little extra push. Bear in mind, though, if you put the extra $50 into your tax-deferred account instead, you're getting that little extra push from it. (BTW, the $226,000 becomes $282,000 with the extra $50, in case you were curious! THAT is something to get jazzed about.)

Compounding is so entirely magical, you really have to play with the numbers in a spreadsheet because they are, indeed, so unbelievably amazing. If you learn to use Excel and learn how to calculate the numbers, you'll blow yourself away.

Any other questions, let me know.

--Wag--


I agree with all of your concepts, however your calculations are not adding up. How often are you compounding the interest?

Compounded monthly (using 8% apr), investing $200 a month for thirty years, you would end up having a little over 298,000 in the bank.

Investing $150 a month for 30 years (after tax) would leave you with just over $223,000.

after your firms' match then put the rest into the Roth IRA you have set up.

i would get a Roth at a brokerage house, like Scottrade.com, with cheap commissions. and 'fund it.'

generally watch for a market slump, then put your Roth $ into mutual funds and add to them every 3 months or so. would tend to emphasize foreign stock mutual funds, (but this can change).

then have fun, let time work the $ for you...

if you work for the gov't you should have a 403(b) and you probably dont pay social security tax anyways. At least I don't I am fortunate enough to have several different investment options so I dont have to worry about supplemental retirement savings.

The best advice is the easy to follow advice. Make additional contributions when you get an increase in pay also dont overdue it. Sometimes people put in too much and later pull money out which carries a penalty in addition to the tax liability.

I'll have to see if I can find my spreadsheet where I did the calculations. Either that, or recreate them.

Right now, I'm too damn tired!

Bear with . . . . .

--Wag--

I am only 23. I have had the Roth open since I was 19, but have not contributed much to it.

So it is a general rule to put more into my 401k when younger and then Roth when older? Is this true? I am not doubting you, just making sure I understood you correctly.
THe most important thing is to save all you can NOW!!!

The key word is NOW!!!

I"m 35yo. I got on a website that had an IRA calculator. I punched in that I had $40k now, in an IRA, at 12% intrest mutual funds. At the age of retirement, it showed I'd have over $600k. Now consider that if I was 50 and put it in there....I'd have probably $50k when I retired.

THe most important thing is to save all you can NOW!!!

The key word is NOW!!!

I"m 35yo. I got on a website that had an IRA calculator. I punched in that I had $40k now, in an IRA, at 12% intrest mutual funds. At the age of retirement, it showed I'd have over $600k. Now consider that if I was 50 and put it in there....I'd have probably $50k when I retired.

+1 million bazillion gazillion. If I'd known then what I know now, I'd be retired now. Do the math on a $2,500 deposit at the age of 16 and you can retire wealthy. Just a little cash every month from age 18 on and you're set for life.

The word cannot be preached enough! The reality is, there is not going to be a government or company pension taking care of you when it counts. It's only what you do now that will make it worthwhile when you're old.

--Wag--

My work Matches 50% of EVERYTHING..to no maximum percentage. For the last 2 years i've been contributing 15% and I am only 21 years old!!! I work for Costco

I don't like the mutual funds that put you on a schedule for retirement. They will head you directly to mediocrity. If you want to retire average, it's the thing to do.

My advice is to pay into a 401k or Roth, or IRA, as much as you can NOW!!! MOst important is that you save, then you need to examine where:

Max out the company match. Based on your numbers, you missed the math, and the company is matching you only 4%, not 5%.

From there, put money into the Roth IRA. Why not just put it all in the company? Because your company will limit you to just a handful of options. If you go out from under their plan, you will have thousands of options available.

Max out the company match. Based on your numbers, you missed the math, and the company is matching you only 4%, not 5%.

Not sure if you were referring to my numbers since I was the OP, but if you were it is 5%, not 4%. Here is how:

1% for nothing
100% on 3%
50% on 2% = 100% on 1%

Total: 1% + 3% + 1% = 5%

If your comment was not in response to me, ignore this post. Thanks for all the info :cheers

It really depends on your age and how much you want to retire with