Monday, December 9, 2019

Milestone reached: over 300K invested in my 401K

A 401K is a retirement savings plan sponsored by your employer that allows you to contribute part of your paycheck towards your retirement before taxes are taken out.  Contributions into your 401K lower your adjusted gross income, which may lower your tax liability.  

I just hit a new milestone in my 401K: my investments have surpassed 300K in value! 

I started contributing into my 401K a little over 8 years ago in October 2011 with a 3% contribution from my paycheck.  When I first started contributing to my 401K, I couldn’t imagine it ever being possible to max out my contributions to $17,500 (the limit back then).

I increased my contributions over time, just 1% every few months.  Slight increases in my contributions made it easier to adjust to slightly decreased paychecks.  Salary increases also helped make increased contributions and lifestyle adjustments easier.  By June 2014, I was finally able to max out my 401K. 

During the last 8 years, the market has gone up and it has gone down.  I continued to make contributions with each paycheck.  When the stock market declined, I picked up more shares of my index funds.  When the market reached new highs, I picked up less shares.

Time in the market is much more important than timing the market.  Investing in a 401K consistently puts money into your account with each paycheck, whether the market is up or down.  You’ll end up fine even if you only invest at market peaks, as long as you stay the course with your investments and not panic when the stock market has a crash or correction.
If your employer offers a 401K, I highly recommend contributing to it.  It’s the best way to consistently invest on autopilot.  And since your contributions are taken out of your paycheck directly, you won’t miss the money when you get paid.  If your company offers a match, definitely contribute up to it.  Saying no to a 401K match is turning away free money.  Match contributions from your company do NOT count towards your maximum individual contribution amount.  

My 401K is 90% invested in 3 funds designed to mimic VTSAX, the Vanguard Total Stock Market (71% S&P Fund, 6% Vanguard Mid Cap, 13% Vanguard Small Cap Growth) as well as 10% into a Vanguard Health Care index.  

Starting next year in 2020, the maximum contribution for 401K will be $19,500 (for those ages 50 and over, the additional "catch-up" contribution limit will rise to $6,500).  I’m looking forward to the increased limits.  If you are not currently maxing out your 401K, try to increase your contributions.  Even 1% increases can make a huge difference over time.   

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