Free Ebook.

Enter your email address:

Delivered by FeedBurner

« I'm a Dork, Sears Tries to Make Good and I Blow It | Main | Sumo Omni: My Son's Dream Come True (And How You Can Win One) »

December 11, 2007


Feed You can follow this conversation by subscribing to the comment feed for this post.

This is an easy answer. Use the target dates and take the 16-22%. Most 401ks don't allow you to invest in individual stocks so it is harder to beat the overall market. You can't pick apple or google, you will most likely have to pick a technology mutual fund or even a less specific growth fund. Lets use some numbers:

annual salary: $100
annual contribution: $6

My control (using my 401ks returns this year: about 8%):
$12 (my cont + their match) contribution becomes $12.96 ($12 * 1.08)

Their control (using the ytd of VTIVX: 10.61%):
$12 (my cont + their match) +
$8 (low end of their contribution) becomes ~$22 (20 * 1.1)

Their control at the average market return of 8%.
($12 + $8) * 108% = $21.06

to match that number with your control you would need a return of
$12 * x% = $21.06
x% = 21.06/12
x% = 175.5% or a 75% return.

This 75% return is only need if you only put in the 6% to get their full match.

Their control at the average market return of 8%.
($26 + $8) * 108% = $36.72

to match that number with your control you would need a return of
$26 * x% = $36.72
x% = 36.72/26
x% = 141.2% or a 41% return.

Even if you put in 100% of your salary, you would need to average 16% return to match the company managed plan at 8% return. The less you put in, the more you need to return. Unless your 401k offers extremely specific options where you can take advantage of trends and specific outperformance, stick with the extra free money and the lower annual return. The disparity becomes even more pronounced one you hit the 16% of "free money". At 16% free and 20% of your contribution, you need to return 75% in your managed account.

The fact that you can't buy individual stocks probably means you get higher returns in the long run ;)

I would vote to take the higher 401(k) and be ecstatic! Very few people get 20% of their pay going directly into retirement funds and that would just be too much for me to pass up. I would continue to max out my Roth IRA as well. Wow.

I'd keep control. I wouldn't trust "The Man" to take care of me.

It doesn't sound like the company is taking control of your finances, only that they have a limited set of choices, much like your average ordinary 401(K). Seems like a winner. Either this is a super company to work for, or they getting this while losing something else like the mentioned pension plan.

Wow, the answer here is easy: take the deal and derive the benefit from the higher contribution rates. I wouldn't be concerned at all about mismanagement, provided the company was complying with legally mandated disclosures to plan participants and I could monitor my account's activity online.

I would take the extra contribution in a heartbeat. That sounds like a very good deal.

The comments to this entry are closed.

Start a Blog


  • Any information shared on Free Money Finance does not constitute financial advice. The Website is intended to provide general information only and does not attempt to give you advice that relates to your specific circumstances. You are advised to discuss your specific requirements with an independent financial adviser. Per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise. All posts are © 2005-2012, Free Money Finance.