Thursday, February 2, 2012

In Which I Talk About 401K's

I am older than I feel most days and one day I will be even older still.

I am 27 years old. I will be 28 this year. Somehow this does not feel true. I don't feel like it's been 10 years since I graduated from high school, or 2 years since I left college (I graduated in 2009 with 2 BA's after 6 years of school with a year off in the middle).

I do know that I am not going to get any younger and that time machines probably won't be invented in my lifetime, so I should start planning for my retirement now.

Actually, according to the financial blogs and advice columns I read almost daily, I probably should have started planning for it 10 years ago when I got my first job. But I didn't.

The earlier you start, the better off you will be. They all like to harp on this idea. It really boils down to the magic of compound interest. And I get it. I really do. I may be an English kid and not have a math friendly brain, but I get it.

The job I have now offers 401K contributions with a limited matching plan. They will do a full match of the first 2 percent of my contributions and half of the next 3 percent I contribute. Confused yet? It's not too hard.

They will put money equaling the first 2 percent of my pay into my account, as long as I put it into a company 401k. They will then give me half of the next 3 percent of my pay. It's like free money. My contributions are also pre-tax income, so they lower my taxable wages, saving me money every pay period as well.

Anything after that first 5 percent match is at my own discretion. They will not match anything above that, but I am free to contribute up to 50 percent of my entire pre-tax pay. Which still wouldn't net me the yearly limit on 401k contributions, but it's a nice thought. I don't make that much money. Nor could I live on only 50 percent of my paychecks. They are small enough as it is.

This is why changing my contributions from 5 percent (where I had been since December) to 6 percent only raises my biweekly contribution a whole 9 dollars. I can live without an extra 9.00 every two weeks. I probably waste more than that on fast food or spilling it out the side of my car when I failed to notice the auto shut-off on the gas pump had not shut off (much like I did Tuesday morning before work).

I think by taking out 10.00 (okay, so I'm rounding up here. It'll probably only be like 9.60 every 2 weeks but whatev) every 2 weeks and investing in my ability to age and not die before I hit the preferred retirement age, I am doing myself a favor. I am also not allowing myself to spend that 10.00 on things I don't need, like lunch at Arby's or more books for my vast and constantly expanding library.

I am already used to making a certain amount of money every two weeks anyway. My paychecks don't deviate too much. A few dollars here and there but nothing to really fret over. When the new year rolled over, my health insurance deductions went down because I switched to a lower cost, higher deductible plan. I never get sick and I hardly go to the doctor. It makes more sense for me to pay 10.00 biweekly than 46.00 biweekly. The benefits are practically the same too, just more deductible and I think a minor coverage difference of 10 percent. With a little as I get sick, this makes the most financial sense to me. Now I can only hope that I don't suddenly need a new spleen because damn. That would suck. AND cost me a fortune.

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