I worked for a while at a credit union. They had a great match as part of their retirement plan. They matched half of your contribution up to 14% of your salary.That totaled a 21% contribution pre-tax.You are saving money on taxes and getting a match. In Jon’s world, this is “free money.” A 401K match is one of the few instances when something seems too good to be true, but it is!
So I contributed up to the limit of the match. I didn’t miss that salary deferral money. I just figured out how to live on less. I drove a 10 year old Bronco II (this was a while ago), which meant no car payment, lower insurance and lower property taxes.. I did my own car maintenance (still do!). I brought my lunch. I knew saving for retirement allowed my money to go to work for me.
When I left the credit union, I rolled that money into my traditional IRA at the Berger Funds. That’s one of my strict rules: Never Never Never Spend your Retirement Savings. You need to let that money continue to work for you so that it snowballs over time.
When I went to work for a financial services company, I contributed up to the company match in that 401K plan as well. They had more options available for investment, but I always tried to choose the investment options with the lowest expense ratios. It’s easy to ignore expense ratios when you first start to invest. They just don’t make up as much as a percentage of your investment. For the people who have been investors for 30, 40, or even 50 years, these numbers start getting BIG! A 1% expense ratio seems innocent enough on one hundred dollars: it’s only $1. But on ten thousand dollars, you’re spending $100 per year. (I love my low expense ratio index funds!)
When I left the financial services company, I did the same thing. I did a rollover into a traditional IRA. A little more conservative with age, I invested that money in a balanced fund. I needed to protect my capital and so had less risk with a well-managed balanced fund.
Bottom Line: Always participate in your company’s contributory retirement plans. With before tax contributions and a company 401K match, it’s a win-win-win situation.
Jon is currently invested in an index fund and a balanced fund.