A 401k Strategy that Leads to Early Retirement

March 3, 2012

by John Bearss

This week I will explore Roadblock Number 2 according to Larry Barrett’s article in the Financial Planning Magazine entitled the 7 Roadblocks to Early Retirement.

Roadblock #1 – Not Saving Enough, Early Enough (Listen to Roadblock #1)

Roadblock #2 – Ignoring Free Money

Many investors fail to take full advantage of their employer’s contribution matching, which is just about the same as throwing away money. Anyone fortunate enough to work for a company that offers a matching contribution to a defined contribution plan (401k, 403b, etc) must take advantage up to the full amount. Regardless of the amount of the match the employer provides, the match is free money.

The amount of money earned and contributed each year will of course change, but for illustrative purposes, assume $6,000 is saved and matched each year for 30 years. At 5%, $12,000 per year for a combined total of $360,000, becomes over $837,000 in 30 years. At 10%, that same $12,000 per year would be worth over $2,171,300.

While employer contributions can be a nice boost to your retirement savings, this strategy alone isn’t sufficient to lead to early retirement, so next week we will explore Roadblock #3.

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