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Author: ortman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76398  
Subject: 401k Info Date: 7/1/1998 5:34 PM
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I'm just starting my first "real" job, and need to determine how much of my income I want to allocate to my 401k. However, while I am familiar with 401k's, I don't possess the detailed information required to make such a decision. Does anyone have a reference site they could point me to that might answer some of my questions? Thanks.

-Dave
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Author: CassFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4114 of 76398
Subject: Re: 401k Info Date: 7/1/1998 5:47 PM
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ortman wrote:

<<I'm just starting my first "real" job, and need to determine how much of my income I want to
allocate to my 401k. However, while I am familiar with 401k's, I don't possess the detailed
information required to make such a decision. Does anyone have a reference site they could point
me to that might answer some of my questions? Thanks.>>

I don't know of a site that would help answer your questions, but I will say 2 things:

1) If you can manage it, put the maximum your plan will allow you to contribute into the 401K. It's tax deferred, and any amount beyond the minimum will help you reach your retirement goals that much earlier.... Also, it will meet (exceed, probably) any employer match to your funds. You will be able to live on the rest. Trust me. Just live within your means and don't get sucked into that credit card/debt cycle.

2) Your best source for information on your 401K is the plan's administrator. The HR department should be able to help you find out who the administrator is and how to find them....

Good luck.

Cassandra

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4117 of 76398
Subject: Re: 401k Info Date: 7/1/1998 6:27 PM
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Greetings, Dave, and welcome.

<<I'm just starting my first "real" job, and need to determine how much of my income I want to allocate to my 401k. However, while I am familiar with 401k's, I don't possess the detailed information required to make such a decision. Does anyone have a reference site they could point me to that might answer some of my questions? Thanks.>>

Read Steps 1 through 4 of our 13 Steps to Foolish Retirement Planning. They will prove most helpful in making your decision. You can find them at this link:

http://www.fool.com/Retirement/Retirement.htm

Regards….Pixy







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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4119 of 76398
Subject: Re: 401k Info Date: 7/1/1998 7:11 PM
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<<I'm just starting my first "real" job, and need to determine how much of my income I want to allocate to my 401k.>>

I'm guessing that if this is your first 'real' job that the income is far greater than any income you have had previously. Given that, I'd recommend putting the MAXIMUM permitted by the plan into it.

It worked for me, I'd be happy to discuss in more detail my experiences. My email is: dpcawley@aol.com

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Author: ortman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4121 of 76398
Subject: Re: 401k Info Date: 7/1/1998 8:02 PM
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<I'm guessing that if this is your first 'real' job that the income is far greater than any income you have had previously. Given that, I'd recommend putting the MAXIMUM permitted by the plan into it.>

That's a correct assumption, but I'm afraid that I also fell into debt some time ago, and need to pay that off as quickly as possible.
(If only CassFool could have offered that advice a few years ago....<sigh>).

-Dave

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Author: CassFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4122 of 76398
Subject: Re: 401k Info Date: 7/1/1998 8:06 PM
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<<<I'm guessing that if this is your first 'real' job that the income is far greater than any income you
have had previously. Given that, I'd recommend putting the MAXIMUM permitted by the plan into
it.>

That's a correct assumption, but I'm afraid that I also fell into debt some time ago, and need to pay
that off as quickly as possible.
(If only CassFool could have offered that advice a few years ago....<sigh>).>>

Believe me, I wish I'd TAKEN that advice several years ago!!!

Cassandra

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Author: Tigger1968 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4123 of 76398
Subject: Re: 401k Info Date: 7/1/1998 8:55 PM
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Contribute the maiximum that the plan allows, you'll thanks us in the long run. At first you might think that it is a big chunk out of your paycheck but you will learn to budget accordingly to you new found wealth. Another reason that I recommend the maiximum ASAP is so that you can begin to realise your raises in you take home pay once they occur(what is that you said). If oyu do not contribute the maiximum from that get go an each time you get a raise you up your deferral percentage you are not really realizing your raise because as you riase your deferral your raise will coverthe increase. So the moral is contribute the Maximum from day 1.

Tigger

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Author: tc001 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4125 of 76398
Subject: Re: 401k Info Date: 7/1/1998 9:29 PM
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<<<I'm guessing that if this is your first 'real' job that the income is far greater than any income you
have had previously. Given that, I'd recommend putting the MAXIMUM permitted by the plan into it.>>>

<<That's a correct assumption, but I'm afraid that I also fell into debt some time ago, and need to pay
that off as quickly as possible.>>


To add two more cents to the pot, I would only contribute up to the maximum of the employer match. You'll never get a second shot at this "free money". Then I would defer all other cash to paying off the debt. After that debt is gone, THEN I would max out the 401K *and* an IRA.

Note: Some debt is acceptable, like mortgages. I also might not view student loans with too harsh an eye. When you say "debt", I tend to think of the bad kind characterized by high rates, large balances, and/or incurred for frivolous purposes (cars, vacations, restaurants, Christmas shopping, etc.).

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Author: LVB Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4126 of 76398
Subject: Re: 401k Info Date: 7/1/1998 11:29 PM
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<<Read Steps 1 through 4 of our 13 Steps to Foolish Retirement Planning. They will prove most helpful in
making your decision. You can find them at this link:

http://www.fool.com/Retirement/Retirement.htm
>>


I'd definitely take look at step 4. Depending on your situation, the max-out-everything approach may not be the best idea if your plan is like mine with no "Free Money" and a group of run-of-the-mill funds. I'm currently trying to decide myself where my money should actually be. The pre-tax advantage simply tacks on to the return of the vehicles within it by a factor relative to your tax bracket, and step 4 has some formulas. So for myself, I have to add that advantage to the returns of the funds within and then decide how those numbers compare to the best after-tax solution. Since they are close, I now have to look at some of the disadvantages of having my money in a 401k vs. after-tax account.

In short, the Free-Money situation is easy. Do it. But in the other case, I think that a close look at the features and limitiations of your company's 401k would be prudent before you start locking up 10k a year or whatever it may be...

LVB




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Author: ortman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4127 of 76398
Subject: Re: 401k Info Date: 7/2/1998 12:42 AM
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<To add two more cents to the pot, I would only contribute up to the maximum of the employer match. You'll never get a second shot at this "free money". Then I would defer all other cash to paying off the debt. After that debt is gone, THEN I would max out the 401K *and* an IRA.>

<Note: Some debt is acceptable, like mortgages. I also might not view student loans with too harsh an eye.>

Perhaps I should quantify. My total debt is equal to about 75% of my annual salary. One third of that is in the form of an auto loan, while the other two thirds is in the form of evil credit cards. The weighted interest rate is about 14%. Needless to say, I become rather depressed when I dwell on how much I pay each much in finance charges.

My employer matches .25 to 1 for the first 6% of my salary, with a 25/50/75/100 vesting period. I was planning on contributing the 6% to get the "free" cash, then plowing every penny left over into my various obligations (before I get used to the increased income). After I pay off all my debt (target 2 - 2.5 years), I was going to evaluate my financial position and determine at that time what to do.

Does this reasoning have at least some logic to it?

-Dave

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4128 of 76398
Subject: Re: 401k Info Date: 7/2/1998 7:13 AM
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Dave,

<<My employer matches .25 to 1 for the first 6% of my salary, with a 25/50/75/100 vesting period. I was planning on contributing the 6% to get the "free" cash, then plowing every penny left over into my various obligations (before I get used to the increased income). After I pay off all my debt (target 2 - 2.5 years), I was going to evaluate my financial position and determine at that time what to do.

Does this reasoning have at least some logic to it?>>

That line of attack makes superb sense. The faster you rid yourself of debt, the sooner you can have more of your assets working for you. And the earlier you get started on long-range saving, the better the effects of compounding on those savings.

One thing to remember about Step 4, though, is it gives you a tool for evaluating alternatives to your company plan. That's useful, but it's also meaningless for those who decide to shun that plan for something else and then divert the dollars from savings to consumption instead. The company plan forces you to save because the money is deducted from your paycheck before you see it, and it's also difficult to remove once it's in the plan. Money saved in a taxable investment is readily accessible, and it's too easy to succumb to temptation. Additionally, the daily pressures we all face make it too easy to say we'll just skip this month's deposit because of a financial "emergency." Both disrupt the compounding on savings and cause our personal plans to get off track. Savings discipline is the key to success and must be maintained at all costs or it's better off to stay within the plan regardless of how mediocre the choices may be.

Regards.....Pixy

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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4129 of 76398
Subject: Re: 401k Info Date: 7/2/1998 7:27 AM
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<<My employer matches .25 to 1 for the first 6% of my salary, with a 25/50/75/100 vesting period. I was planning on contributing the 6% to get the "free" cash, then plowing every penny left over into my various obligations (before I get used to the increased income). After I pay off all my debt (target 2 - 2.5 years), I was going to evaluate my financial position and determine at that time what to do.

Does this reasoning have at least some logic to it?>>

It has logic, and you certainly won't be doing a bad thing if you follow it. However, I still hold to the contribute the maximum theory. Just imagine if you'd gotten a lower job offer and had to take it, you would still make a plan to rid yourself of CC debt.

Another thing to realize is that you can't go back and put in money that you could have put into a 401(k) later. And, its not just your current tax bracket that matters. This money continues to grow tax free, so if your tax bracket increases in the future, the dividends and short term capital gains realized in your 401(k) are avoiding a higher tax in the future years as they continue to grow.

I'm a firm believer in the budget by scarcity theory. If you don't have it, you can't get it from an ATM machine.

My concern with you plan is that its not very automatic. People's interests change through time, over the next two years, investing/being foolish may be a distant memory(I hope not!), if you have put yourself at the highest rate - and 'forgotten' about it, you'll be saving aggressively without realizing it.

However, if your debt reduction plan works and 2.5 years from now you want a new car, you'll walk into that dealer without thinking about reducing your income, and monthly payments on a new car may look pretty small.

I'm only 26 and I've already cycled a few times from 'hyperaggressive investing' to 'I'm doing OK, and young - time to have fun!'. My automatic monthly investments and 401k have made those 'fun' less detrimental to my financial position.

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Author: Helter Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4130 of 76398
Subject: Re: 401k Info Date: 7/2/1998 7:37 AM
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Wow, I'm riled up today, and this is only on 1/2 a cup of coffee.

I'm assuming that you're young as well(could be a bad assumption I suppose). Grab a spreadsheet program, take your current maximu contribution, NO MATCHING, and about a 10% or even 9% ROR. Run that out until you're 67 1/2 or whatever your full retirement age is with contributions continuing at their current rate(this assumes you never get a raise).

Voila! a 401k safety net. Just imagine how easy it is to get 9% when you're not paying taxes, and you're getting that match from the employer.

Also, consider that since most people don't stay at jobs longer than 5 years these days. Chances are you'll have an opportunity to move that money into a self-directed IRA some day - and using Foolish methods, make that 9% look like chump change.


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Author: DownwardSpiral One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4134 of 76398
Subject: Re: 401k Info Date: 7/2/1998 12:45 PM
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Sounds good to me. Keep at it & you'll come out fine.

Don't forget to save your dimes & quarters, or start a credit union account and put a little into it each paycheck. DON'T use it for vacation money. This is for when the wash machine
implodes or the kidney stone incident costs $700 out of pocket [not that I have any experience in these matters].

Save early & save often; you may not have to save a lot.

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Author: bacon Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4140 of 76398
Subject: Re: 401k Info Date: 7/2/1998 9:41 PM
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<After I pay off all my debt (target 2 - 2.5 years), I was going to evaluate my financial position and determine at that time what to do.>

You might also look at a debt consolidation loan. This will cost you more in the long run, but the monthly payments will likely be less than the sum of your current loan payments. You can use the increased cash flow (if, in fact, the increase is significant--call some banks and credit unions and get some numbers and crank them) for one of a couple of purposes: more flexibility in your disposable income, plow the extra back into your debt consolidation loan to pay it down faster, or (and what would likely be my move) plow it all back into your 401(k), or an IRA or some other tax sheltered plan. If the money grows at a higher rate than your debt consolidation loan (which is likely, but look at this carefully, as well), then you're even more money ahead _in the long run_.

Hope this helps.

Eric Hines


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Author: Sakav Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4224 of 76398
Subject: Re: 401k Info Date: 7/7/1998 3:56 AM
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That's a correct assumption, but I'm afraid that I also fell into debt some time ago, and need to pay that off as quickly as possible.

I recently attended a seminar with just that topic in mind. Eliminating all debt BEFORE investing. Not sure I agree with them totally as I would suggest putting the minimum that your company will match in your 401K.
The principles to eliminate your debt is to pay the min. on your high interest cards except one. Throw all you can muster at it until paid off. Then take THAT amount and add to the next cards min. payment and on, esentially snowballing the amount of your payments. You'd be surprised at how fast you can pay off ALL your debt. IF I strictly follow their regime I, myself, can have my mortgage, cards and several loans totally paid off in just over 4 years. That is a total debt of around $60,000. I assume you are relatively young and therefore would still have plenty of time for investing after that. I myself will only have 15 years left BUT, I will have no house payments etc.
Then and only then do they advocate saving and investing for the future. Of course the Fool Brothers also advocate eliminating high interest cards and loans prior to investing.
That means no using credit cards anymore and operating totally on cash. Getting a Debit/Check Card that will take money directly from your checking acct. and eliminate the need for writing checks. They can also be used to reserve hotel rooms and cars etc.


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