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March 09, 2006


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I know exactly why I did not want to contribute to my 401k early in my career.

1) The companies I worked at had a vesting schedule on their contributions up to full match of 3% when fully vested.

2) I never worked at a place for more than 1 yr until my current job, where I've been at for 3 years now. When there was no match, there was no desire to do 401k.

3) I wanted to save for a property. I did that, so I'm happy. I could have borrowed against my 401k, (if I had one), but it was just as easy pulling the money from a savings account.

I now contribute 5% of my income to my 401k with full matching from the company. I don't feel like the first 4 years of not having 401k jeopardized my retirement. If my current company did not contribute, I probably would not be participating either.

My employer matches the first $3,000 contributed per year (vested for 3 years), and I look at that as part of my salary. Since I just started working in May following graduation, I knew that I'd have to put in a good chunk of my paycheck to get the full match. The last couple weeks, I was putting in the max of 20%! My savings account took a hit, but I figured that it'll be worth it when I look at my account and see another couple grand magically appear.

I worked for a company that only matched on company stocks and you could not convert the stocks to anything else. And some of the investment options had the company stocks included in the portfolio! This was a horrible plan and I am glad I didn't put too much money into it.

Most plans I find have limited investment options that are all based on stocks. I don't like the way these plans make it difficult to determine how much you've contributed to the plan. You have to save all your paystubs or statements and add up the numbers yourself. I have a feeling most people have no clue as too how much they are really earning on their plans. How about the fees? Do you know you are being charged these fees? Do you know when they are deducted from your account?

As for the notion that stocks are great investments. Recently Warren Buffet indicated that between 1899 to 1999 that the djia only returned a little over 5.3%. All this talk about 11% return on the market are done by people who put their analysis squarely around the internet bubble.

If you were not able to gain money in your 401k plan and had 30 years left before turning 59.5 then your return would be around 2.4% based on the company match. Plus you have to pay income tax on this gain!

IMO the 401k plan is not that much better than other investments. If your company matches with cash and have an investment that returns more than inflation after fees then this would be comparable to other long term investments.

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