First, not to toot my own horn, but my website, www.helpmy401k.us has a great tab called Investment Tools .
There are calculators there for almost everything. The most commonly used one is the 401(k) Calculator. You could also use the 457(b) calculator if you are a government employee, but the concept is the same.
Simply go to the 401(k) calculator and plug in your own numbers. For example, lets say you are 29 years old with $1000 in a retirement savings account. Lets also say that you earn $50,000 per year and that you follow Dave Ramsey’s advice and put in 10% of your pay into your 401(k) or $5000. If you earn an average return on this 401(k) account of 8% and keep doing this until age 66, you will have saved $1,076,087 for retirement. And that does not include an employer match or a raise in pay – EVER. Personal Finance expert Eric Tyson has an idea which may help provide an incentive to save more in 401(k) or IRAs – instead of calling them those names, we should try calling these “tax-reduction accounts”.
What if we did figure those in? Easy – just enter those numbers.
Well, lets say your employer matches your contribution by 50% of whatever you put in up to 4%. If you put in at least 4% or more (and we are doing 10%, remember?), that means you are getting another 2% ($1000) from the employer. Also, lets assume they will raise your pay by
2% per year as a cost of living increase. Keeping the other earlier numbers the same, you will now have saved $1,598,680 for retirement.
Here is another one which my be helpful if you are planning to pay off credit card debt. And you should absolutely do that! It will have you save more in your “tax-reduction accounts.”
Let’s say you have a balance of $2000 in a credit card account. Your current monthly payment is $125/month and your interest rate on the card is 17.5%. (Ugh!) If you do as Dave Ramsey says and do some “plastic surgery” on your card (cut it up and dont use it anymore!), did you know that you can pay the card off in 12 months by just raising your payment to $183/month? It’s true and very easy to figure out using the “Credit Card Payoff” calculator on the site. This can be very helpful to see yourself making progress towards your goal, if you can’t pay the entire amount, but know you should pay less than the minimum.
In upcoming blog articles, we will look at a few more of the calculators. You can see these calculators and many other helpful ideas on my website, www.helpmy401k.us. You can also follow me on Twitter at www.twitter.com/deanvoelker . I also host a weekly internet radio program “Improving Your Financial Health” at http://www.blogtalkradio.com/401kcoach .