Saving more helps you other ways,
too. It can reduce the amount of income tax you pay at the end of
the year … because your contributions come out of your pay before
tax is figured. And, when you save at least up to the maximum your
employer matches (if any), you take full advantage of this “free
money.” Let’s compare two savers:
Mike maximizes, Phil falters.
Based on just one year's contributions, here are the outcomes for
two savers. The illustration is for hypothetical purposs only and
is not intended to represent the returns of any specific investment.
It does not reflect the deduction of income taxes, which would be
due when the money is withdrawn.
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2005 Income: |
$50,000 |
$50,000 |
| 2005 total contributions |
$15,000 |
$2,000 |
| 2005 total employer match* |
$2,500 |
$1,000 |
| Value of 2005 contributions in 20 years** |
$81,566.75 |
$13,982.87 |
* Assumes 50% up to first $5,000
** Assumes 8% interest
Source for compound interest calculation: www.1728.com
“Here’s one way to pour it on.”
For most of us, raise time rolls around once a
year. Why not make a habit of kicking some or all of this windfall
into your plan? |
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