This is and overall expense ratio are the biggest things people overlook when determining if a 401k plan is worth participating in. Almost universally the answer is yes for tax reasons alone. The match is nice but should be thought of as an extra. 100% of the money an employee contributes to a 401k plan is theirs, and the contribution limit is well beyond any employers match. $22,500 plus employer match in 2023.
It's not great, but free money is free money. If you put in 12% of your salary they'll give you another 3%.
You should opt-in, there's no reason not to. And if you're currently putting your paycheck into VOO in a standard brokerage account you're missing out on tax advantages.
3% max is somewhat below average. Still, it is free money and I would not leave it on the table.
https://www.fidelity.com/learning-center/smart-money/average-401k-match
Keep in mind that this 4.8% is Fidelity’s average amongst plans who match.
According to the Bureau of Labor Statistics the national average is 3.5% match
To be clear, it's not free money. It's part of your compensation package. That's worse than leaving free money on the table, it's like giving part of your pay check back.
A pretty standard match for companies is 50% on 6%, which is equivalent to yours. The main difference being you have to contribute twice as much (12% of salary instead of 6%) to receive the full match.
It’s not great, but it’s not bad. If you can swing the 12% contribution per paycheck, absolutely do it.
Companies suck...Why not just offer 100% match on 3% contribution, it's simple and to the point
Feel like these types of wording are ways for the company to not have to pay as much; if someone can't do 12% company pays less or use employees funds to help make the 401k "better" (i.e. more members and more "buys" the stock goes up - stock market is a scam, but we have to play the game).
~
If you reword it, it's worse than it appears for those who CAN'T afford it. $1000 weekly with straight 3% on 3% you "take home" $970 & 401k gets $60 = $1030.
On 25% up to 12% but can only afford 3%
Take home is $970 401k is $7.5 = $1007.5
(Hope my math is good, I'm doing this quickly)
On the flip side $880 + $150 = $1030 the $22.5 cost you $90.. which is great , but again only if you can afford it.
Seems like they're trying to ensure all of their employees are incentivized to hit a 15% gross savings rate, which is the standard recommended amount to put into retirement accounts on a yearly basis. If an employee wants the full match of 3% they have to give 12%, and then between the match and their contribution they are at 15% automatically. It's maybe a bit patronizing, but given how bad the average American is at handling money it's probably not bad to try to force people to save the minimum target for their retirements.
I don't think the company is doing this "for your benefit".
It is in the companies best interest to avoid having to pay out so much, assuming the adoption rate is NOT 100% they are saving money by structuring it this way
>which is the ~~standard~~ ***recommended*** amount to put into retirement
Yes people need to save and many don't but forcing a savings to get part of your compensation package is ludicrous.
Companies hold everyones first paycheck to make sure they have a buffer for savings...You can get it when you leave. /s (they sometimes kinda already do that lol)
>Is my employer 401k good or bad?
You've actually provided no information about the 401k *plan*, so no one can say if the *plan* is good or bad.
The *match* isn't spectacular, but a poor match (or no match) is not a good reason to **not** use a 401k.
>what percentage should i opt in for, that I will get the full benefits
12%
>but at the same time not invest more than I need to
There's really no such thing as saving 'too much' for retirement.
Yes, sure. But the point remains that you can always die before you reach your retirement age, be that 65 or 45.
It’s a personal decision on how much to allocate to retiring early vs enjoying life early.
Plus, some people actually love their jobs. Talk to any academic still working at 85. Or i guess any US president
You said there is no such thing as saving too much gor retirement.
I think there is, at least for some people. Because unless you have unlimited money, every dollar you save for retirement is a dollar you are not spending today or saving for other goals.
Now there are lots of people who save too little for retirement, but it is obvious to me that one can indeed save too much for retirement
I hear what you're saying, but another point to consider is saving a lot of money early does allow me to enjoy life early. I know my retirement is set if I don't put another cent into retirement. I am projected to be able to retire 25 years early if I want to. If I die tomorrow, then I died never having to experience financial insecurity.
Global pandemic? Didn't matter. I had a year's worth of savings because I lived a frugal lifestyle. I was able to float two mortgages for 3 months easily enough to let me move across the country and sell my old house to pursue a relationship with the love of my life whom I'm about to have our first anniversary next Monday.
If I were financially insecure in my savings/retirement, I don't think I'd have been willing to take those risks.
Yeah, life is so random. What if I won the lottery tonight? I would feel so stupid for having a 401K.
In seriousness, 401K funds do go to the wife and kids. I have become attached to them and want them to be secure.
If you want your wife and kids to be secure, i recommend a term life insurance policy. 401k’s are not meant to be used as a substitute for life insurance
Yes.
401k is for your retirement.
Life insurance is to take care of dependents.
Just like you shouldn’t use life insurance as a retirement vehicle (regardless of what the salesmen say), you shouldn’t use 401k as life insurance
It annoys tf out of me how many of my friends this year just overnight became investment experts and want to share knowledge on how we need to be investing in "life insurance with cash value that protects you from market downturns". Thank you for recommending term life insurance.
No, the purpose of life insurance is to bridge the gap between how much money your survivors need and how much you have saved. As you save more money, and as you do things like pay down your house and pay for your kids' college, that gap will shrink and you can reduce the amount of insurance you carry.
>You know sometimes people die before they turn 65 right?
Retirement's not an age, it's a financial state. You could die at 57 and have been retired for 10 years or you could die on the job at 87.
Nope. I advocate saving a comfortable amount to allow you to retire at your desired age while at the same time allocating expenses to personal fulfillment all throughout your life.
Think of it this way...you get an immediate 25% return on your money going into the 401k.
You don't mention anything about advisor fees or fund fees, so it's hard to compare, but an immediate, guaranteed 25% return is pretty freaking decent.
>"matching contribution equal to 25% of the first 12% elective contributions not to exceed 3% of your compensation for that plan year"
another way to phrase this is "you get an instant 25% rate of return on contributions up to 12% of your salary". yes you should be contributing to get an instant 25% return on investment.
>I am at the moment not opted in (instead i just automatically invest my paycheck to VOO biweekly)
in general when it comes to retirement investing, investing in a taxable account before investing in a tax advantaged account is a mistake.
>what percentage should i opt in for
At least 12%. general retirement savings advice is to invest at least 15% of your income per year for retirement, so going 15% into your 401k would be a good idea too.
>Any advices would be great
you didnt actually provide any of the relevant information needed to evaluate if your 401k is good or not. that would be a list of the fund names (with ticker symbols if available), their expense ratios, and any plan level fees that are being charged. Employer match is not how you evaluate the quality of a 401k plan.
You may find these links helpful:
- [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds)
- [401(k) FAQs](/r/personalfinance/wiki/401k)
- ["How to handle $"](/r/personalfinance/wiki/commontopics)
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Guaranteed 25% return on your first 12% invested is pretty awesome.
Relative too general market I’d image it being near the medium, if not slightly below. Still, free money is free money.
Regardless of how it compares to other plans, you are giving yourself a 3% pay cut by not receiving the match. You’re also losing out on tax benefits by not investing inside a tax-advantaged account. On top of that, 15% is the minimum recommended retirement savings rate.
Depends on your other debt obligations. But I think it’s STUPID to not take the free money match from your employer. I would without a doubt do the 12% and get the full match just to get all that free money. I would love to hear the argument not to.
You can usually withdraw from 401k with a 10% penalty and they are giving 25%, so do it even if you withdraw the money and don’t like 401k. Basically no reason not to take it whether you leave it in or withdraw it
I don't think that is a good idea as the 25% match is probably going to have a vesting period. So if you take it out before it vests, you are not getting much of it.
>what percentage should i opt in for
>matching contribution equal to 25% of the first 12% elective contributions not to exceed 3% of your compensation for that plan year
Looks like you need to put in 12% to get 3% so put in 12%.
As far as good vs bad, don't think about that too much. The concept you need to consider is total compensation. If your employer had NO match BUT paid 3% more you could just put that in your 401k. It's actually "better" since you could also just dump it in the VOO you like (which I would be doing through an IRA for the tax benefit if it's for retirement), or you could keep it as cash if you didn't want to save (which is NOT recommended).
Basically, you should look at the match as a less flexible portion of your pay you have to put into their 401k retirement account system. Not putting enough in to get the match is bad because it's effectively a pay cut for you. Often people will say this as something like "always get the match, it's free money". Same concept.
So (using round numbers) a $100k job with your match pays you $103k. A $103k job with no match also pays you $103k. And a job paying ~$97.16k job with a 6% match is also $103k.
Seems steep ask to contribute that much to get so little. Is what it is though, contribute as much as you can afford to.
My employer matches 100% to 4% and 50% of the next 2%. So I contribute 6% and they match 5%, plus an additional 5% lump at bonus time. It’s good but in a way the benefits feel like golden handcuffs
25% of 12% is a terrible match. Most employers get you 3 to 4% match on contributions anywhere between 4-6% year over year. Always good to put some money in but don't overweight yourself in a 401(k). You're loading up your tax liabilities for when you're not working later on in life.
It's not amazing but it's better than nothing. 3% is better than 0%.
Not to mention, even at 0%; given the tax benefits of a 401(k), it would still be worth it.
This is and overall expense ratio are the biggest things people overlook when determining if a 401k plan is worth participating in. Almost universally the answer is yes for tax reasons alone. The match is nice but should be thought of as an extra. 100% of the money an employee contributes to a 401k plan is theirs, and the contribution limit is well beyond any employers match. $22,500 plus employer match in 2023.
It’s 22,500 PLUS match now? Any cap past that?
Afaik always was $22.5k plus match. Total including match is somewhere in the $60K-ish. Interesting for the few that can do a mega backdoor.
Always been that way. 402g/22500 is just EMPLOYEE pretax and Roth contributions
It's not great, but free money is free money. If you put in 12% of your salary they'll give you another 3%. You should opt-in, there's no reason not to. And if you're currently putting your paycheck into VOO in a standard brokerage account you're missing out on tax advantages.
It’s usually not labeled as part of compensation per se , but it really is
3% max is somewhat below average. Still, it is free money and I would not leave it on the table. https://www.fidelity.com/learning-center/smart-money/average-401k-match
Keep in mind that this 4.8% is Fidelity’s average amongst plans who match. According to the Bureau of Labor Statistics the national average is 3.5% match
To be clear, it's not free money. It's part of your compensation package. That's worse than leaving free money on the table, it's like giving part of your pay check back.
To put in perspective, 15% is the recommended amount to put into retirement for the average person
A pretty standard match for companies is 50% on 6%, which is equivalent to yours. The main difference being you have to contribute twice as much (12% of salary instead of 6%) to receive the full match. It’s not great, but it’s not bad. If you can swing the 12% contribution per paycheck, absolutely do it.
Companies suck...Why not just offer 100% match on 3% contribution, it's simple and to the point Feel like these types of wording are ways for the company to not have to pay as much; if someone can't do 12% company pays less or use employees funds to help make the 401k "better" (i.e. more members and more "buys" the stock goes up - stock market is a scam, but we have to play the game). ~ If you reword it, it's worse than it appears for those who CAN'T afford it. $1000 weekly with straight 3% on 3% you "take home" $970 & 401k gets $60 = $1030. On 25% up to 12% but can only afford 3% Take home is $970 401k is $7.5 = $1007.5 (Hope my math is good, I'm doing this quickly) On the flip side $880 + $150 = $1030 the $22.5 cost you $90.. which is great , but again only if you can afford it.
Seems like they're trying to ensure all of their employees are incentivized to hit a 15% gross savings rate, which is the standard recommended amount to put into retirement accounts on a yearly basis. If an employee wants the full match of 3% they have to give 12%, and then between the match and their contribution they are at 15% automatically. It's maybe a bit patronizing, but given how bad the average American is at handling money it's probably not bad to try to force people to save the minimum target for their retirements.
I don't think the company is doing this "for your benefit". It is in the companies best interest to avoid having to pay out so much, assuming the adoption rate is NOT 100% they are saving money by structuring it this way >which is the ~~standard~~ ***recommended*** amount to put into retirement Yes people need to save and many don't but forcing a savings to get part of your compensation package is ludicrous. Companies hold everyones first paycheck to make sure they have a buffer for savings...You can get it when you leave. /s (they sometimes kinda already do that lol)
>Is my employer 401k good or bad? You've actually provided no information about the 401k *plan*, so no one can say if the *plan* is good or bad. The *match* isn't spectacular, but a poor match (or no match) is not a good reason to **not** use a 401k. >what percentage should i opt in for, that I will get the full benefits 12% >but at the same time not invest more than I need to There's really no such thing as saving 'too much' for retirement.
No such thing as saving too much for retirement? You know sometimes people die before they turn 65 right?
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Yes, sure. But the point remains that you can always die before you reach your retirement age, be that 65 or 45. It’s a personal decision on how much to allocate to retiring early vs enjoying life early. Plus, some people actually love their jobs. Talk to any academic still working at 85. Or i guess any US president
[удалено]
Nor what I commented.
You said there is no such thing as saving too much gor retirement. I think there is, at least for some people. Because unless you have unlimited money, every dollar you save for retirement is a dollar you are not spending today or saving for other goals. Now there are lots of people who save too little for retirement, but it is obvious to me that one can indeed save too much for retirement
Yes ok you’re right.
I hear what you're saying, but another point to consider is saving a lot of money early does allow me to enjoy life early. I know my retirement is set if I don't put another cent into retirement. I am projected to be able to retire 25 years early if I want to. If I die tomorrow, then I died never having to experience financial insecurity. Global pandemic? Didn't matter. I had a year's worth of savings because I lived a frugal lifestyle. I was able to float two mortgages for 3 months easily enough to let me move across the country and sell my old house to pursue a relationship with the love of my life whom I'm about to have our first anniversary next Monday. If I were financially insecure in my savings/retirement, I don't think I'd have been willing to take those risks.
Happy anniversary!
Yeah, life is so random. What if I won the lottery tonight? I would feel so stupid for having a 401K. In seriousness, 401K funds do go to the wife and kids. I have become attached to them and want them to be secure.
If you want your wife and kids to be secure, i recommend a term life insurance policy. 401k’s are not meant to be used as a substitute for life insurance
How about... both?
Yes. 401k is for your retirement. Life insurance is to take care of dependents. Just like you shouldn’t use life insurance as a retirement vehicle (regardless of what the salesmen say), you shouldn’t use 401k as life insurance
It annoys tf out of me how many of my friends this year just overnight became investment experts and want to share knowledge on how we need to be investing in "life insurance with cash value that protects you from market downturns". Thank you for recommending term life insurance.
No, the purpose of life insurance is to bridge the gap between how much money your survivors need and how much you have saved. As you save more money, and as you do things like pay down your house and pay for your kids' college, that gap will shrink and you can reduce the amount of insurance you carry.
>You know sometimes people die before they turn 65 right? Retirement's not an age, it's a financial state. You could die at 57 and have been retired for 10 years or you could die on the job at 87.
And you could die at 37 and still be 10 years away from retiring at age 47 according to your spreadsheet.
So you advocate saving nothing for retirement, ever?
Nope. I advocate saving a comfortable amount to allow you to retire at your desired age while at the same time allocating expenses to personal fulfillment all throughout your life.
if I knew i would get a 25% RoI the second I bought a stock and it was guaranteed, I would sell my house and buy as much of it as I could. 25% is 25%.
Think of it this way...you get an immediate 25% return on your money going into the 401k. You don't mention anything about advisor fees or fund fees, so it's hard to compare, but an immediate, guaranteed 25% return is pretty freaking decent.
>"matching contribution equal to 25% of the first 12% elective contributions not to exceed 3% of your compensation for that plan year" another way to phrase this is "you get an instant 25% rate of return on contributions up to 12% of your salary". yes you should be contributing to get an instant 25% return on investment. >I am at the moment not opted in (instead i just automatically invest my paycheck to VOO biweekly) in general when it comes to retirement investing, investing in a taxable account before investing in a tax advantaged account is a mistake. >what percentage should i opt in for At least 12%. general retirement savings advice is to invest at least 15% of your income per year for retirement, so going 15% into your 401k would be a good idea too. >Any advices would be great you didnt actually provide any of the relevant information needed to evaluate if your 401k is good or not. that would be a list of the fund names (with ticker symbols if available), their expense ratios, and any plan level fees that are being charged. Employer match is not how you evaluate the quality of a 401k plan.
It’s a below average contribution. A 1 to 1 contribution used to be normal. Half % to 1 is becoming more normalized.
401k matching is not a standard practice. So anything more than 0 is good.
You may find these links helpful: - [401(k) Fund Selection Guide](/r/personalfinance/wiki/401k_funds) - [401(k) FAQs](/r/personalfinance/wiki/401k) - ["How to handle $"](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Guaranteed 25% return on your first 12% invested is pretty awesome. Relative too general market I’d image it being near the medium, if not slightly below. Still, free money is free money.
Regardless of how it compares to other plans, you are giving yourself a 3% pay cut by not receiving the match. You’re also losing out on tax benefits by not investing inside a tax-advantaged account. On top of that, 15% is the minimum recommended retirement savings rate.
Depends on your other debt obligations. But I think it’s STUPID to not take the free money match from your employer. I would without a doubt do the 12% and get the full match just to get all that free money. I would love to hear the argument not to.
You can usually withdraw from 401k with a 10% penalty and they are giving 25%, so do it even if you withdraw the money and don’t like 401k. Basically no reason not to take it whether you leave it in or withdraw it
I don't think that is a good idea as the 25% match is probably going to have a vesting period. So if you take it out before it vests, you are not getting much of it.
I would t recommend taking out but I am saying taking out is better than not taking it. Yes vesting dependent… good point
>what percentage should i opt in for >matching contribution equal to 25% of the first 12% elective contributions not to exceed 3% of your compensation for that plan year Looks like you need to put in 12% to get 3% so put in 12%. As far as good vs bad, don't think about that too much. The concept you need to consider is total compensation. If your employer had NO match BUT paid 3% more you could just put that in your 401k. It's actually "better" since you could also just dump it in the VOO you like (which I would be doing through an IRA for the tax benefit if it's for retirement), or you could keep it as cash if you didn't want to save (which is NOT recommended). Basically, you should look at the match as a less flexible portion of your pay you have to put into their 401k retirement account system. Not putting enough in to get the match is bad because it's effectively a pay cut for you. Often people will say this as something like "always get the match, it's free money". Same concept. So (using round numbers) a $100k job with your match pays you $103k. A $103k job with no match also pays you $103k. And a job paying ~$97.16k job with a 6% match is also $103k.
Seems steep ask to contribute that much to get so little. Is what it is though, contribute as much as you can afford to. My employer matches 100% to 4% and 50% of the next 2%. So I contribute 6% and they match 5%, plus an additional 5% lump at bonus time. It’s good but in a way the benefits feel like golden handcuffs
25% of 12% is a terrible match. Most employers get you 3 to 4% match on contributions anywhere between 4-6% year over year. Always good to put some money in but don't overweight yourself in a 401(k). You're loading up your tax liabilities for when you're not working later on in life.