{"id":7956,"date":"2020-11-09T10:38:17","date_gmt":"2020-11-09T15:38:17","guid":{"rendered":"https:\/\/einvestingforbeginners.com\/?p=7956"},"modified":"2022-06-01T15:39:41","modified_gmt":"2022-06-01T19:39:41","slug":"401k-match-calculator-ashul","status":"publish","type":"post","link":"https:\/\/einvestingforbeginners.com\/401k-match-calculator-ashul\/","title":{"rendered":"This 401k Match Calculator Shows How Powerful Compound Interest Can Be"},"content":{"rendered":"\n

There’s various compound interest calculators out there, but not many specific 401k match calculators that are easily manipulable to show how different contributions and employers matches can compound. We present an Excel version, or you can simply place your own inputs on the page (scroll to the bottom<\/strong>)!<\/p>\n\n\n\n

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Earlier this week, I made a Compound Interest post in the Investing Facebook group<\/a> and had a follower of the group, Joshua Glenn, ask me if there was a 401K Compound Interest calculator\u2026 I was somewhat dumbfounded.  <\/p>\n\n\n\n

Out of all of the compound interest calculators that I had seen, I hadn\u2019t seen one that allowed you the ability to put a certain percentage of your income to determine your contribution amount, as well as include an employer match, and even give you the ability to adjust for potential future raises as well, and for some reason I never even questioned it.  <\/p>\n\n\n\n

In the investing community, we often almost glance over 401Ks.  <\/p>\n\n\n\n

It\u2019s like, max out your company match, but then go invest in companies with dividends, max out your Roth IRA, etc., etc.  And yes, I agree with those things, but the first thing I said was MAX OUT YOUR COMPANY MATCH!  <\/p>\n\n\n\n

We never focus on that \u2013 so I wanted to, thanks to the great question on the Facebook page.  <\/p>\n\n\n\n

The Importance of Calculating the Compound Interest from a 401k<\/h2>\n\n\n\n

For most people, I think that investing in their 401K is the most common form of a retirement plan that they might have, and I think that\u2019s because it\u2019s easier and also because their company might have a company match.  <\/p>\n\n\n\n\n\n\n\n

It seems easier because the company is likely pushing it and explaining the program to new employees, along with touting their 401K match to their employees to try to get them in the door and get them saving for retirement, as well as using it as a major selling point in interviews to try to sell potential employees on the position.  <\/p>\n\n\n\n

I mean, if I was going to ask a potential new employer what their benefits look like, the main two things I would care about were the vacation time and the company match\u2026 everything else is all gravy.  <\/p>\n\n\n\n

Now, a 401K contribution is determined by taking a percentage of your income rather than an amount of the income.  <\/p>\n\n\n\n

In other words, if you want to contribute $100\/month and your salary is $40,000, you don\u2019t say that you will contribute $100 \u2013 you have to contribute 3% of your income ($40,000 annual salary\/12 months = $3,333.33.  $100\/$3,333.33 = 3%).  <\/p>\n\n\n\n

Of course, as you get raises, the amount that you contribute will increase if you keep your percentage at 3%.  <\/p>\n\n\n\n

401k Employer Match Example<\/h2>\n\n\n\n

Imagine you work at a company that gives you a 5% raise every year and they give you a 4% match on 5% personal contributions (I frequently see this as a match for companies.  <\/p>\n\n\n\n

For instance, they match 100% of your contributions up to 3%, then half of your fourth and fifth percentages).  <\/p>\n\n\n\n

You can probably easily calculate how much you might invest this year, or maybe even next year, but I wanted to create a tool to help you to do this automatically.  Below is a screenshot to show you the format, and here’s the link to the actual Excel file: 401k Match Calculator<\/a><\/p>\n\n\n\n

First, you will need to input a few different sections,\nwhich are highlighted in green below:<\/p>\n\n\n\n

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  1. Starting Salary \u2013 Input your starting salary here<\/li>
  2. Annual Raise Assumption \u2013 Assume what you will get as a raise on an annual basis; it could be 0% if you want to be extra conservative or if you usually receive 3-5%, maybe put 3% to still be conservative