OK here is another great example based on the importance of starting early and staying on track with your 401K finances. I will show three examples of 401k calculations to see the net effect of how much your money can grow given similar rate of return scenarios but different time frames. I stumbled on this calculator and it is one of the best 401K calculators I have ever seen on the Internet. All of the examples will have a rate of return of 5% and a retirement age of 65. Also the annual salary increase is 3% and the employer match is the standard 50% on the first 6%. I do this to show all my readers a simple step anybody can make today like increasing your contribution to help you reap major rewards in the future. Not many people care to run the numbers for themselves or do not bother to get the info on where to find such a great calculator. The leg work is done for you and all you have to do is plug in your specific figures from your employers 401k, 401A, 457b plans, etc.
First Example:
-Age: 25
-Income : 40K
-Contribution #: 10%
-Magic #: 1,008,672
Second Example:
-Age: 30
-Income: 40K
-Contribution # 10%
-Magic #: 721,445
Third Example:
-Age: 35
Income: 40K
-Contribution # 10%
-Magic #: 505,859
Wow what a huge difference those first 10 years make in your magic number. If you start at 25 and do not mess up your plan you will have doubled the money compared to the 35 year old. The proof is in the numbers people and I can not stress this enough. Imagine how great it would be if you could do 20% of your pay from day one. I’m guessing about 2 million bucks. If you start early you will not miss that money as it becomes a part of your pay routine. Also the difference between 8% of pay check contributions and 10% contributions will not effect your net pay as much because it is pretax money.
Once again this is only for informational purposes only so please run your own numbers to see what your magic # will be at retirement age.
LINK To- 401 K Calculator
401K funds might be the only plan you have for your future as Social Security is not guaranteed.
Watch your Money !
Great Post!I used the 401K calculator and im impressed… It was easy to use and provided alot of detail! It's scary how Social Security is not guaranteed for our future generations…so your right, the earlier we start the better. Based on the calculations, I think i will be ready to conquer the future $$$ =)…
@Real-That's great you get the importance of saving early and often best of luck to you.
Great tool! It's amazing when you see the numbers right in front of you. Unfortunately because of the economy, I know many people who have tapped into their 401k savings to keep a home, or pay medical bills. My company still matches a portion, and I have a pretty aggressive mixed funds that have done ok vs. a year ago when I lost half of my savings. :/We need more money education – so thank you for taking the time to educate others.
@YAZ- Yes seeing the figures in a realistic example makes all the saving we are doing worthwhile because even though we can not touch those funds, one day we will get to use the money when we really need it in retirement. People at times tend to panic and raid their funds, but during tough times we must do everything possible to stay above water. I would never recommend anybody to take out 401K funds and if they had to only as a last resort. Also during those times that the market suddenly goes south, your only defense is to continue investing and buying your best funds at cheaper prices and eventually you will get a bigger upswing when the prices go back up.
I need to monitor my account a little better. I only glance at the statement and as long as I see it on the green, I put it away. The reality is that we need to learn how to stay on top of our money and invest time in learning and applying. That's my goal :/I'm not familiar with all the funds am invested in, it would be a good time to do some research. Geez your blog is making me feel so guilty. 🙂 P.S. How do I sign up for emial updates? I thought I did, but I'm not getting any notifications.
@Yaz- Please do not feel guilty as we all can improve on our money situations. Just take more positive steps than negative ones and you will be OK. As far as signing up, on my home page you will see a follow by email, enter an email, you will be sent a email and then you will have to verify it. That's all and from then on you will get an automatic email when I have a new post. Thanks for the comment.
@Carlos- Yes you are right not many young adults have that mentality to start saving early, if they did they would be ahead of the game of life. Don't worry about the past decisions you made and focus with intensity on your future beginning now and you will def. succeed with your savings. As far as the government goes we are still paying into the S.S. plan, and if it's taken away it will affect many peoples retirement.
Great post! The truth is that, sadly, our education system and, for some, our families don't really understand the importance of having a retirement plan. I was lucky enough to begin working with Washington Mutual at the ripe age of 15 as an intern; so they automatically started my 401k. This definitely helped me out when it came time to pay for college, but honestly, I wish I would have left it alone and just rolled it over once I left the company. This post hits the details on the head! 401ks and retirement options are vital to anybody from our generation and we need to make sure our friends and families are starting to keep this in mind. Sadly, we won't be able to rely on government help or social security checks down the line. Keep up the great post Uncle El!
Definitely, now it's all about moving forward and getting things done.
Among the many 401(k) benefits, a major advantage is that money you’ve deposited is absolutely safe from any sort of bankruptcy problems or debt collectors. Even if the firm you are employed in files for insolvency, you need not panic as your contribution is safe. This is because the amount is kept in trust by a different entity altogether and remains untouched.