I hate exercising. I hate it.
I have friends that talk about that elusive “runner’s high.” Well, I’ve never experienced that. Running just gives me shin splints and sore knees. It’s certainly never given me a buzz.
But you know what? As much as I hate exercising, I do it. And do you know why?
Because my wife nags me.
My long-suffering wife cares about me and wants me to be healthy. So, she nags me (under much duress) to eat spinach salads and ride my bike up and down the hills surrounding my house at night. And she’s been known to hide my cigars and whiskey too. Which is just mean.
I don’t like it. But I listen to her because I know she’s right.
So today, I’m going to nag you. Don’t worry, this has nothing to do with exercise.
No, I’m going to nag you about your 401(k) plan. And you should listen to me here because I’m right.
The 401(k) plan is the single best savings vehicle for the vast majority of middle-class Americans.
If you work for your money, you should be using your 401(k) plan as your primary savings vehicle. And you should be maxing out your contributions for the year. In 2015, you can contribute $18,000, not including any additional matching from your employer.
As I wrote earlier this year, if you find yourself in a high tax bracket, you get an effective “return” of as much as 46% just for contributing and having your employer match.
And that’s without putting a single dollar at risk in the stock market. There is no investment anywhere else in the world that offers safe returns at anything close to those levels.
So here’s where the nagging comes into play. If you’re not on track to put the complete $18,000 into your 401(k) plan this year, login to your account and make changes today. You have three months until year end. That’s plenty of time, even if you’re starting at zero.
I can already hear your reply. “There is no way the math works out. I can’t possibly save that much money in that little time.”
Yes you can. If you earn just $72,000, then $18,000 amounts to three months’ worth of income for you. Yes, I know you have Social Security and Medicare taxes and probably health insurance too. Let’s not split hair. The fact is that you still have the means to get to $18,000.
Of course, you still have to eat and pay your mortgage. I get that. But if you’ve been responsible with your money, you probably have some cash or investments sitting in non-401(k) savings.
If that’s the case, then you can drop your salary to effectively zero, dump every last penny of your paycheck into the 401(k) account, and live off of your savings until year end. The net result is that you’re effectively converting taxable savings into tax-free savings in your 401(k) plan.
So before you delete this letter, login to your 401(k) plan. If you’re not on track to contribute $18,000 by year end, make changes. Oh, and try to eat a salad or two while you’re at it.
Editor, Dent 401k Advisor