401(k) Scrutinized So That You Can Improve Yours

Michael G. Murphy
July 29, 2009 — 1,121 views  
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What if you were to really analyze your 401(k) plan? Do you think there could be a better way for you to prepare for retirement? In fact, there is a way you can make up lost savings if you had not made any contributions over the years for whatever reason. And even if you have participated in this type of plan, there is a great opportunity to augment your savings.

But did you know that when some people consider joining a 401(k) plan, there are two things that usually discourages them. One reason is because the money to contribute would have to come out of their paycheck. Another reason is because the payoff just doesn't seem promising. Even with their employer's matching contribution, the incentive just doesn't seem big enough.

However, if the circumstances are right, you may enter a lower tax-bracket and, consequently, your take-home pay does not go down. Ask your payroll department if they would check this out for you. They can see if it would be true in your case.

But what about the long-term benefit to you? Is it really worth the bother?

Consider this: Most companies match 50% of your contributions up to a certain percentage--3% in most cases. And if your investment portfolio within your 401(k) goes sour--even if it's up to 30%--you still have only lost your employer's match.

With that in mind, when you add it up, if your income is $50,000.00 a year on average throughout your 30 years of preparation, that means you will have--in the worse case scenario--a total of $45,000.00, plus any interest you may have earned. That means your retirement funds will not last you much over a couple years, depending on your standard of living when you retire compared to what it is now.

But consider this: If you have a house paid off by the time you retire, approximately one third of that $45,000.00 will be back into your pocket. That is $15,000.00. That would make your retirement saving last a little longer. But that would still not be much.

However, if you were to pay your mortgage off in a fraction of the time, you would have all the time remaining to increase your savings. And you could add it to your 401(k) plan if you want.

Think of it this way, if you were able to pay your house loan off in less than 10 years--and it is possible--than you could also save 20 years worth of mortgage payments. And if they are just $600.00 a month, that would add up to $144,000.00, which is a much better nest-egg than your $45,000.00! (Both of these figures, to enable a fair comparison, are not including any interest you can earn on the money, which is for the most part not even guaranteed anyway.)

The other alternative is to pay your mortgage bank about that much in interest over the life of your loan.

You could do that if you prefer, but the former is the better choice, wouldn't you agree?

About the Author

By the way, if you want to know a guaranteed way to make tons of money with your mortgage, get my free ebook by clicking here: http://www.personancial.com

Michael G. Murphy is the owner of PersonancialTM Services, a company committed to helping individuals and families achieve financial freedom.

Michael G. Murphy