I made a great 401k decision!

[LizfromtheBronx]

Full Disclousre: I'm not very good with money. I tend to lurk around here to be inspired by you folks, but seem to keep making terrible decisions myself. I'm working on it...but I made a really good decision this week, and I'm really proud of myself, so I wanted to share.

I just started at a new company about 6 weeks ago, making $50k gross. This past week, it was decided that I was going to take on some additional responsibilities instead of them hiring a very entry level person to do them, and in return, my salary will be increased to $60k (goes into effect in another pay period or so, still working that out).

I'm eligible to start contributing to the company's 401k plan in another 6 weeks (3 months after hire), and after running some calculations, decided to use my salary bump to immediately start putting 15% into the plan. This maxes out the company's match (20%, up to 3% max). This will give me $9k of my own contributions + $1800 of company match per year at this salary. I plugged the numbers into a few online tools, and based on saving for 30 years (I'm 35 now), with a 2% salary increase, and 7& return, I'll have $1.1 million at retirement. Seeing as how I currently have ZERO...this was a huge motivating factor. I know it's not enough (another calculator predicted I'd need $2.1 million), but I couldn't find a more complex tool that would allow me to model not only annual salary increases but also significant increases, such as from promotion.

The best part is, after using a take home pay calculator (I'm an addict for modeling, what can I say???)...after the 401k contribution, my health insurance and transit deductions (which go into effect in a few weeks as well)....my take home pay will be a few dollars more than it is at the current salary! So basically, my raise is paying for stuff that was going to make my take home pay hurt a lot. Now it'll just be sweet.

The Numbers:
Current Gross Salary: $50k
Current Take-Home (Bi-Weekly): $1320.xx (no deductions other than taxes)
Current Retirement Savings: NADA (I know, I know...)

New Gross Salary:$60k
401k deduction (bi-weekly): $346.15
Health insurance deduction (bi-weekly): $46.15
Transit Deduction (bi-weekly): $65 (this covers my monthly transit pass, as well as leaves a little cushion for the bus I take to my mom's house a few times a month)
New Take-home (bi-weekly): $1337.xx

Sorry for the very very long post...I'm just excited!

[Petunia 100]

I'd be excited, too!

Congrats on both the raise and the smart decision.

Now, how do you plan to allocate your contributions? What are your investment choices?

[LizfromtheBronx]

Thanks, Petunia!

That's my next step - plan is administered by John Hancock, so I need to go on their site to check out the different funds and their associated fees. I don't know a thing about investing, so I'm tempted to go with a target date fund , but I'm also interested in a lifestyle fund (based on their quiz, I fit into the "growth" category).

Any suggestions? I've had 401k plans before (but stupidly cashed them out)...my investment selections were willy nilly though.

[humandraydel]

Thanks, Petunia!

Any suggestions? I've had 401k plans before (but stupidly cashed them out)...my investment selections were willy nilly though.

First of all, a big congratulations! The hardest part is taking the first step. However...

My #1 suggestion would be...try to figure out WHY you cashed in your previous 401k's to ensure it doesn't happen again. Did you cash it out to pay off credit card debt? Buy a new car? Pay for a roof on your house?

What does the rest of your budget look like? You need to ensure you have at least some savings so you don't need to cash out or take a loan from your 401k.

[Petunia 100]

Humandelray makes a very good point. Even though it doesn't earn much, it is important to have some cash sitting in the bank. You don't want to turn to your retirement stash to cover unplanned expenses.

I think some target date funds and some lifecycle funds are excellent; some are mediocre; some are crummy. It just depends what is offered in your plan.

[cardtrick]

Congrats on the raise! Just remember that you also need after-tax savings. Keep at it and you'll have a ton of money saved up, in no time!

[HappySaver]

Congratulations on the quick and substantial raise! That's more than I've received in pay increases in the last 7 years combined, which is how long I've been with my current employer.

[LizfromtheBronx]

Sorry for my delay in returning to the thread! I've been busy earning my raise

Previous 401k plans were cashed out basically because of a lack of an e-fund (have done so twice, never very much in there, accepted the penalty and moved on), something that's still a problem, but on it's way to being rectified. Not quite ready to post my budget yet....mostly because I know what everyone is going to say about it

Thanks again for the congrats! I'm hoping to be able to sustain this level of contribution, because I am so drastically behind. If I need to scale back a bit, I can always do so. Planning on picking up a part time job to generate some more income within the month....once I do that, I should be able to take a harder look at spending, and maybe then I'll be brave enough to post my budget for critique!

Oh, and I took a look at the JH website, unfortunately, can't get any plan info without a log in, and I don't think I can get my log in until I enroll. A very dear friend who also works here is just enrolling now, she said she'll let me use her log-in to explore the different options, so once I get in, I'll come back and post some of their funds.

[jpham540]

Yea definitely make sure you have 3-6 month in your emergency fund so that you don’t have to tap into your 401k for emergency again. Also do pay attention to the fees in the fund, I prefer index funds because it’s more diversified and the fees are low. I never use John Hancock before so I do not know what type of funds they have. Yea once you get more information you can post it here so we can look at it. Also congrats on the raise.

[theedanimal]

I have my 401k with JH, and I've had it in their most aggressive fund (JILAX is the symbol), and it went up about 25% last year. Most of the people I've talked to say that if you're in the younger range (I'm 33 now) that you should be aggressive, since you have the time to fix things, if by chance the aggressive move doesn't work out. I don't know too much about all of this stuff, but the aggressive advice has paid off so far.

Congrats on the job/pay/good decisions.

Daniel

[LizfromtheBronx]

I have my 401k with JH, and I've had it in their most aggressive fund (JILAX is the symbol), and it went up about 25% last year. Most of the people I've talked to say that if you're in the younger range (I'm 33 now) that you should be aggressive, since you have the time to fix things, if by chance the aggressive move doesn't work out. I don't know too much about all of this stuff, but the aggressive advice has paid off so far.

Good to know! I'll keep an eye out for that fund once I get in.

I'll come back to post again once I can see my options!

Thanks again, everyone.