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Old 11-30-2012, 01:34 AM   #41
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Do you not pay taxes ? 40% of my salary was gone before I ever got it...
+1 Yep! It's hard to pay yourself first when your uncle butts in line in front of you........
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Old 11-30-2012, 06:07 AM   #42
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Originally Posted by Midpack View Post
After conducting annual 401k and other financial planning meetings with (salary/hourly-blue/white collar) employees for over 20 years, and hundreds of individual employee discussions - I can tell you 40% would be considered ridiculous even insulting to at least 99% of an audience.
  • We used to suggest a measly minimum of 10% (relative to the article above), or at least the 6% threshold for matching funds - IMPOSSIBLE!!!
  • We also used to recommend things like increase 1% a year from where you are until you reach 10% - IMPOSSIBLE!!!
  • We used to recommend putting all or part of their annual increases into their 401k contributions before they got used to having the additional income (seems relatively painless) - IMPOSSIBLE!
  • If we had ever recommended 40%, the whole room would have been screaming at us for days/weeks - and we'd have no credibility from then on.
Unfortunately they're all still working, we (my Dept Mgrs esp HR, Corp & I) really wanted to help them build their nest eggs and tried everything we could think of. Management (us) just sucks!!!

Boy I miss those days

But I'd love to watch Lance present his recommendation to a live, mainstream audience.
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Old 11-30-2012, 06:12 AM   #43
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As far as kids... I own up to being a mean mom. I've told the kids if they want a car, we'll match them dollar for dollar... and they have to pay for their own insurance and gas. We'll be happy to keep their bicycle in good repair if they can't afford it. College will be the same deal I got. Public school, degree related to a marketable career (no art history on my dime), I'll pay tuition, books. and base rent... spending money, laundry money, commute money - that's what a part time job is for. If they don't like it - they can move out and support themselves.
Mom/Dad - is that you??
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Old 11-30-2012, 06:16 AM   #44
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Some man's "ridiculous" is another man's "perfectly normal"...
I've seen "deep fried" turkeys. But, this is the first time I've seen a "deep skewered" turkey.

How many minutes per pound?
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Old 11-30-2012, 06:32 AM   #45
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Uhm...that's not true, is it? I'm not familiar with the US approach, but let's say I get a "100% match on the first 3% to 6%" as quoted in the article. That would be REALLY generous, I guess. Let's further assume that I make 100,000$ a year and contribute the maximum 17,500$. On the first 6,000$, I get a 100% match, meaning total payment into the 401(k) is my 17,500$ plus 6,000$ from my employer, which equals 23,500$. The match adds 34% (6,000$/17,500$) to what I contributed myself. Great!
+1

It's a 100% return on the first 3-6% contributed if the employer match is 100%. Very surprising that a financial blogger would make such a fundamental mistake.

BTW, my company may be REALLY generous but, it matches the first 6% of 401k contributions dollar for dollar.
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Old 11-30-2012, 06:45 AM   #46
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I thought that non-financial people like me could participate in forums like this one and learn from more savvy investors without being ridiculed. Apparently not everyone agrees, which is ok.
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Originally Posted by Huston55

I've seen "deep fried" turkeys. But, this is the first time I've seen a "deep skewered" turkey.

How many minutes per pound?
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Old 11-30-2012, 06:58 AM   #47
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I thought that non-financial people like me could participate in forums like this one and learn from more savvy investors without being ridiculed. Apparently not everyone agrees, which is ok.
You participate quite a bit without any problems. As you point out, though, some folks here are more numbers oriented than others, so when you choose to engage in a discussion around numbers or math you invite this type of challenge.

I enjoy and benefit from the attention to numerical detail here and don't take it personally when my numbers are challenged.
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Old 11-30-2012, 07:13 AM   #48
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Point taken. Thinking about it, maybe I am not that useless at financial planning after all since I have achieved financial independence after working here for 10 years or so, at 47, with no debt. Projected cash flows about $85k- $100k a year for the next 48 years. All this while touching the lives of thousands of patients here and abroad. Not bad for a non finance guy with ridiculous posts :-)

Must go to work now. Have a good day everyone.

Quote:
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You participate quite a bit without any problems. As you point out, though, some folks here are more numbers oriented than others, so when you choose to engage in a discussion around numbers or math you invite this type of challenge.

I enjoy and benefit from the attention to numerical detail here and don't take it personally when my numbers are challenged.
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Old 11-30-2012, 08:35 AM   #49
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Pack-

Hopefully, you send them a Xmas card every year noting how much you're enjoying retirement.
Wow, that's way off track...
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Old 11-30-2012, 09:40 AM   #50
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I guess you could interpret it, but it's required as I understand it. From US DOL site... Meeting Your Fiduciary Responsibilities

You do not have to have meetings to meet the requirement..... just send out the paperwork provided by the 401(k) company....


I was at a mega company for 15 years and never once did I have a meeting about 401(k)s....
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Old 11-30-2012, 09:52 AM   #51
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You do not have to have meetings to meet the requirement..... just send out the paperwork provided by the 401(k) company....

I was at a mega company for 15 years and never once did I have a meeting about 401(k)s....
Could very well be. Our MegaCorp's interpretation was that some dialog/2-way interaction was required in the spirit of the (frustrating admittedly vague) regs since employees were self-managing a "portfolio." We held annual meetings and documented attendance as proof of our compliance, part CYA, part genuine interest in the employees. We also sent out lots of quarterly info.

But it was clear many employees could not understand even a basic one page mutual fund summary. I distinctly remember a 55+ employee standing in the breakroom telling everyone he had put his entire 401k in Templeton Foreign so he could retire sooner. I remember another employee in a control room telling everyone he had converted all his funds to cash in late Fall 2009, and buy in again after missing most of the run up that followed. I know 'management sucks/doesn't understand' - but it broke our hearts to watch employees do these things to themselves.

It all comes down to spirit of the regs.

But fair enough, I won't dispute that we might have not been required to hold actual meetings with employees...
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Old 12-04-2012, 12:41 PM   #52
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Our company has had employee meetings about the 401K plan and planning for retirement. In fact, once HR scheduled a representative from Social Security Administration to speak. The SS person was a really good speaker and gave a great presentation. I am not in HR so I do not know percentage of participation, but I do know that if you work here and choose not to participate, it's not because you haven't been warned.
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Old 12-04-2012, 01:29 PM   #53
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Interesting thread.

I DO think that 40% is way more than needed if the investor begins right out of college. It's simply not necessary, and there IS more to life than JUST saving for retirement. You can become wealthy by investing 15-20% of your income if you do it right from the start.

BUT, I don't think 40% is too much if you don't have children. If you are married and you both work and don't have children, then it is even easier. Quite honestly, if you are married and both work full time and don't have children, unless you live in a crazily expensive place like San Francisco, you should be able to save 60%...this is 60% of take home pay; after taxes.

I DO agree with the author that some people predict a larger return than they are to get, but he uses a bad example. He talks of an 8% return and then he puts in a bad year in there to show what can happen. When a person (an investor) predicts 8% return, they do that as an AVERAGE rate of return, understanding that some years will bring 20% and some -18%. My stuff on average since 1989 has returned ~11% annually on average. I won't expect that same kind of return in retirement, but if I were to drop it to 8% or 7% or 6% or whatever, that would be with the understanding that that's an AVERAGE and that some years are better and some are worse.
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Old 12-04-2012, 02:32 PM   #54
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Uhm...that's not true, is it? I'm not familiar with the US approach, but let's say I get a "100% match on the first 3% to 6%" as quoted in the article. That would be REALLY generous, I guess. Let's further assume that I make 100,000$ a year and contribute the maximum 17,500$. On the first 6,000$, I get a 100% match, meaning total payment into the 401(k) is my 17,500$ plus 6,000$ from my employer, which equals 23,500$. The match adds 34% (6,000$/17,500$) to what I contributed myself. Great!
Now what if I have contributed the maximum for 15 years? Even assuming 0% investment returns (because it is oh so smart to be "only in cash" ), my balance is 15 x 23,500$ = 352,500$. Now, the 6,000$ match means only a 1.7% (6,000$/352,500$) "annual return". Not too shabby still, but clearly not "3-6% annual return" (and most probably below the inflation rate). Any positive return on my balance increases the effect. And of course it does NOT compound because the match is only paid on new contributions, isn't it? Did I get that right?
You are correct that the employer contributions do not have a "compounding" effect. I had the same reactions as you when I read the article, so i ran the math in excel using IRR. However, the part above that doesn't make sense to me I highlighted in bold.

If I run a series of cashflows over 15 years with a contribution rate of 17,500 per year and ending value of 352,500 then using the XIRR function in excel that works out to be an annualized rate of return of 4.08%. If I carry the example out to 30 years then the IRR is 1.95%
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Old 12-04-2012, 03:51 PM   #55
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Some man's "ridiculous" is another man's "perfectly normal"...


Santa in the off season?
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Old 12-04-2012, 07:51 PM   #56
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I think you need to re-check your math.
Now wait a minute partner. Who is to say that his math should use the same principles as your math, or anybody else's math. After all, it is his math. While his report might appear odd at first hearing, stranger things have been recounted on this board.

Ha
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Old 12-04-2012, 08:14 PM   #57
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Before ER in 12/2009 my combined 401/457 contributions were the following percentages of my GROSS annual salary:

1999 15.3%
2000 14.8
2001 13.8
2002 25.6
2003 26.5
2004 33.5
2005 39.3
2006 40.6
2007 38.4
2008 36.9
2009 41.4

Reflecting the 2002 ability to max out BOTH 401 #and# 457 (2001 & prior, it was either / or), and the age 50 catch up that began in 2004, implemented fully in 2005)
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Old 12-04-2012, 08:19 PM   #58
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+1 Yep! It's hard to pay yourself first when your uncle butts in line in front of you........
But... the 401(k) comes off the top before income tax is withheld.
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Old 12-04-2012, 08:42 PM   #59
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It appeared to be an article for a general, mainstream audience. I critiqued it from that POV, not my own experience.

A lot of people HERE have managed to save 40% or more, but would you feel comfortable trying to convince a mainstream audience to do the same?

I dare you...
I think I'd have an easier time convincing them the earth was really flat.
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Old 12-05-2012, 03:33 AM   #60
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You are correct that the employer contributions do not have a "compounding" effect. I had the same reactions as you when I read the article, so i ran the math in excel using IRR. However, the part above that doesn't make sense to me I highlighted in bold.

If I run a series of cashflows over 15 years with a contribution rate of 17,500 per year and ending value of 352,500 then using the XIRR function in excel that works out to be an annualized rate of return of 4.08%. If I carry the example out to 30 years then the IRR is 1.95%
ChadR, I didn't phrase it very well. What I meant is that the positive effect of the employer match, percentage-wise, decreases as the balance increases. Your way to study it is much more elegant, of course. Thanks for taking the time.

Your result is interesting: A 30-year working life would result in ER, so if a person works until regular retirement age, the IRR will be even smaller. Don't get me wrong, an additional 1 or 2% can go a long way - I just hate it when some "expert" discussing Finance does not get their math straight or makes claims like "the match you receive from the company will generate a 3-6% annual return all by itself and that will COMPOUND on a year over year basis."
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