Message Font: Serif | Sans-Serif
 
UnThreaded | Threaded | Whole Thread (15) | Ignore Thread Prev Thread | Prev | Next | Next Thread
Author: bergmanm Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 25223  
Subject: 401k vs. personal investment Date: 1/5/2013 7:56 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
My employer offers a 401k program *without a match* and based on my calculations I am not convinced it's so much better than investing the same amount of money myself in diversified indexes which I am comfortable at.

First there's the funds vs. S&P argument that mutual funds perform poorer:
http://www.forbes.com/sites/rickferri/2012/10/11/indexes-bea...

And now the math of 401k vs. own investment using the compound interest formula:

My own investment - 600 per month after tax (7200 total, 8% rate of return, 30 years)
7200 * (((1+0.08)**30 - 1) / 0.08) = 815639.12

401k - 1100 per month pre-tax (13200 total, same rate of return but with 1.6% fee = 6.4% return, 30 years)
13200 * (((1+0.064)**30 - 1) / 0.064) = 1120053.13

With the 401k when taking funds they will be taxed - I calculated the retirement tax assuming my income is only 2333 per month. This results in 1840 after tax or 78% of the money.

So the 401k actual post tax is worth: 873641.44

---

There's 70k difference between them. Is the 70k worth having the money in a 3rd party who's investment strategy I don't control and the money is locked until age 67?
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (15) | Ignore Thread Prev Thread | Prev | Next | Next Thread

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement