The 401(k) Savings Grid

401kGrid_3


A 401(k) is a retirement savings plan offered by most employers to employees. It lets employees save and invest part of their paycheck before taxes are taken out. The most an employee can contribute to their 401(k) in a given year is $18,000. This grid shows how much you can save using your 401(k) based on how much you contribute each year and how many years you contribute.

This grid assumes your investments will grow at a rate of 7% annually and that your starting balance is $0. It does not take into account any employer match.

Some Interesting Observations

  • By contributing the maximum of $18,000 per year for only 10 years you can save $266,000
  • By maxing out your contributions each year, you can become a 401(k) millionaire in just 24 years (assuming a 7% annual growth rate on investments)
  • In a How America Saves report by Vanguard, among a sample of 3 million people with Vanguard 401(k) accounts, only 11% maxed out their yearly contribution in 2012.
  • Contributing to a 401(k) is one of the best ways to reduce your taxable income each year and turbo-charge your path to financial independence.

Zach

Zach is the author behind Four Pillar Freedom, a blog that teaches you how to build wealth and gain freedom in life.

Zach's favorite free financial tool he's been using since 2015 to manage his net worth is Personal Capital. Each month he uses their free Investment Checkup tool and Retirement Planner to track his investments and ensure that he's on the fast track to financial freedom.

Although the bulk of his net worth is invested in index funds, his favorite place to invest in individual stocks is M1 Finance, a site that allows you to build a custom portfolio of stocks for free.

His favorite way to save money each month on his recurring bills is by using Trim, a free financial app that negotiates lower cable, internet, and phone bills with any provider on your behalf.

His favorite micro-investing app is Acorns, a free financial app that takes just 5 minutes to set up and allows you to invest your spare change in a diversified portfolio.

His favorite place to find new personal finance articles to read is Collecting Wisdom, a site that collects the best personal finance articles floating around the web on a daily basis.

Zach

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Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

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