Leveraging my job benefits

[Bonks22]

Hello,

I have been at my first professional job for about a year and a half, yes I am a young guy just beginning a career, and have no idea on how to take advantage of my benefits.

I've taken advantage of health benefits and vacation but what puzzles me is the retirement plan (401k). I think my employer matches 50%, or maybe 100%, I'll have to find out. Other than that I pretty much ignored the details.

So as you can see I barely know anything about the 401k. My question is what advice can you give me (considering I'm 20 and just entered the real world) and what books or websites can I refer to for extra help?

- Ryan

[jIM_Ohio]

There are web sites which can help you see impact your paycheck (google paycheck calculators). If you search this site, you might find a link for paycheck city for example.

Basic example-

If you gross $1000 and net $700, that missing $300 is taxes of various types.

If you put 10% into 401k, you gross $1000, $100 is put into 401k and you are only taxed on the $900. You might net $630-$650 or so.... your net does not drop by $100 because the $100 is pre tax and the net is post tax.

My advice would be to start the 401k and invest up to the match. See how this affects your paycheck... then increase the 401k percentage by 1-2% per year.

If you make 50k and get a 3% raise, that is $1500

If you put 10% into 401k before, it was $5000 per year.
After raise you would be putting in $5150. Bump the 401k percentage up a % or two so more of the $1500 raise is saved. For example if you bump 401k from 10 to 13%, you would end up saving the entire raise.

in the example
$5000 is 10% of $50,000
$6500 is 12.6% of $51,500

Do this a few times (when you get a raise, bump the contribution percentage up) and you will forget you are doing it. I have been doing this for years and am about 2-3 raises short of maxing my 401k (max is $15,500 per year).

Once the money is in the 401k, you will have investment choices. Check my blog for some ideas on this.

Basic advice- take an aggressive investment philosophy while young. Pick a large cap fund, a mid cap fund, a small cap fund, a foreign fund and maybe an emerging markets or international small cap fund too.

You need to define the percentages contributed to each. In general send more to the large cap funds than the others to balance risk out.

I contribute
42% to large cap
15% to mid cap
15% to small cap
15% to international large cap
10% to international small cap and emerging markets
3% to bonds

If the choices overwhelm you, choose a target date fund and send all of your money to that fund with a date appropriate for when you are 70 yo.

[bjl584]

I would start by going to your HR department. They should have all of the info that you need to get set up with your company's 401K.

[Fern]

Ask HR when you are eligible to begin contributing to the 401(k). Usually it's a 3- or 6-month wait. As an investor, the best thing you've got going for you right now is your age! Contribute 15%, or as much as you can. If you begin now and do this faithfully in the years ahead, reaching your first million will not be much trouble.

Put the power of compounding and time to work for you.