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darrellquock,

You wrote, instead of contributing the regular 15% per paycheck...wouldn't it make more sense to try and maybe contribute 40-50% per paycheck if the market continues to decline....?

I have mine set to 60% of pay. That's the most I can contribute (pre-tax) without impacting my ESPP and other contributions. It doesn't leave much of a paycheck.

I did this last year (I actually started the practice a couple months into 2016) and intend to continue doing this going forward until retirement for a few reasons:

1. Statistically the stock market ends the year higher 75.36% of the time, regardless of how it began the year.
2. Even on a month-to-month basis, contributing earlier wins 59.99% of the time.
3. Contributing earlier locks in my employer's matching contribution earlier. (This might not be true for everyone, but it's a huge win for me because they match contributions 50 cents on the dollar regardless of income and matching is 100% vested on day 1.)
4. My last work year is likely to be short, so contributing early gets me used to the cash-flow issues ahead.
5. I already have enough in taxable assets that the only real problem it creates is figuring out what I might need to liquidate if anything to cover expenses without incurring too much in taxes.

Note: I pulled historical S&P 500 (^GSPC) data from Yahoo into a spreadsheet to come up with the stats. However (^GSPC) is a price index. The correct index to use is the Total Return Index (^SP500TR), but Yahoo only had 30 years of data so I figured more data trumped the inclusion of dividends. But if you do use Yahoo's ^SP500TR you are ahead 65.77% of the time on a monthly basis and 77.42% of the time on an annual basis.

Finally now that I've pulled that data, let me say that the relative return information is a complete red herring in this analysis!

The main reason for front-loading is to shelter money sooner instead of later. That's because to consider front-loading you must have alternate assets available to live off of and it's just as likely these assets are already invested in the market.

Sheltering assets earlier makes sense only because taxes accrue on interest and dividends as they are paid. Assuming on average you can shelter you funds 4 months faster and assuming an average of about a 2% payout ratio and 24% marginal rate, front-loading effectively gives you about an 0.16% boost to savings by the end of the year … entirely from tax efficiencies. Yeah, you read the right. It's really not a lot. But every little bit helps, right? (This amounts to about $30/year in tax savings on average.)

So in the final analysis … front-loading is really just a (very?) small optimization. But it might be worth it to you if you have taxable investments needing to be sheltered.

BTW, I'm eligible for catch-up contributions, which brings my pre-tax contributions to $25,000 in 2019. Also our plan also allows up to $27,500 in after-tax contributions, so I basically won't have a regular paycheck for over half the year.

- Joel
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