goldsummer

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Jan 20, 2013
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I don't know much about 401k. I have a job offer that offers 401k with 4% match after 1 year of employment. Is that considered a good offer, or standard, or below average?

Anything other tips/suggestions on how to invest with respect to 401k?

Thanks :)
 
Apr 10, 2018
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First pay off all your debt.
Next buy a house on a 15 year loan.
Save 10% of your income in your 401k while paying off your house.
Once your house is paid off save the extra.
If you can save more than the 10% do it!
Saving 5,000 a year from age 30 to age 60 will net you about 800k.
 

Mman

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Mar 22, 2005
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I don't know much about 401k. I have a job offer that offers 401k with 4% match after 1 year of employment. Is that considered a good offer, or standard, or below average?

Anything other tips/suggestions on how to invest with respect to 401k?

Thanks :)
I'd say a 4% match is pretty good. Within the 401K trying to find low cost options (ideally less then 0.25% if you can get it) for stock market and bonds in whatever ratio is appropriate to you orr just find a low cost target date fund and keep it really simple.
 
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Mar 26, 2018
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Look at your investment options. Look at the historical rates of return.

Ideally, you should pick funds that beat the indexes. If you have two that are similar, then you can look at things like expense ratios. I also look for as much diversification as possible. I put about 30% in large cap, mid cap, and small cap funds, with a bit of the remainder in international funds. REalize that international funds have underperformed US equities substantially the last decade.

Avoid anything that resembles an annuity inside a 401k. I personally see no reason to have bonds, but that is me.

If you can’t find a good fund, then you can usually find an S&P index.
 

dpmd

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First pay off all your debt.
Next buy a house on a 15 year loan.
Save 10% of your income in your 401k while paying off your house.
Once your house is paid off save the extra.
If you can save more than the 10% do it!
Saving 5,000 a year from age 30 to age 60 will net you about 800k.
I disagree with your strategy. There is no reason to wait until all debt is paid to start saving in a 401k. Especially with a match. You absolutely want to contribute the maximum that is matched. Doubling your money immediately is a return that paying down debt more quickly can't match. You also don't need to purchase a home before participating in a 401k. I would argue that if you can't afford to fund your 401k plus a mortgage then you can't afford that house and should get an smaller one or wait until you have more money. High interest credit card or personal debt might be something to throw your money to at first (in the first year prior to qualifying for a match especially) but for most student loans and mortgages you will come out ahead in the long term having investments compounding earlier rather than paying off these simple interest loans.
 

TMP-SMX

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Mman

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Look at your investment options. Look at the historical rates of return.

Ideally, you should pick funds that beat the indexes. If you have two that are similar, then you can look at things like expense ratios.
The best available evidence says that expense ratio predicts future performance better than historical performance. I mean if you took the top 20% of funds the last 5 years they would be no better than the median 20% of funds over the next 5 years. Pick your asset allocation and get it the cheapest way you can.
 

Stroganoff

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I don't know much about 401k. I have a job offer that offers 401k with 4% match after 1 year of employment. Is that considered a good offer, or standard, or below average?

Anything other tips/suggestions on how to invest with respect to 401k?

Thanks :)
Gotta compare apples to apples, really, as a 401k in an entry-level job (I notice you are pre-med but I don't know your age or work experience or skillset necessarily if you are non-trad) vs. a 401k in a large, generous, profitable corporation could potentially differ greatly. Especially if your skillset is in great demand and rare and you are in an employee's market, a corporation will have to compete for your attention.

IMO a match that starts after 1 year of employment is not competitive compared to a match that starts the first day of the first month after the employment start date, for example. Your delayed match tells me this is an entry-level job with potentially high turnover, or they expect you to jump ship to greener pastures sooner than later. BUT any match is still better than nothing! My last gig was at a formerly Fortune ~400 corporation that had declared bankruptcy and was $1B in debt and was circling the drain, so they made the match 0% then finally 1%. I really miss this one company that matched 7% guaranteed + a discretionary bonus match of up to another 3-4% based on how the company was doing at the end of the year. It's worth shopping around for employers that "treat you well" as all that extra several thousand $$$ here and there early in your career will affect how much your nest egg can grow. Don't settle for "meh" benefits unless you don't have any other options. :)

What's the vesting schedule for the match? A competitive vesting schedule is 100% vesting immediately; i.e., what the employer chips in for the match is immediately yours, in which case it would be wise to contribute the maximum 4% to your 401k as soon as you reach the 1 year mark.

It's common, unfortunately, for employers to phase in the vesting; e.g.:

After 1 year - 25% of the employer match is yours
After 2 years - 50% is yours
3 years - 75% is yours
4+ years - 100% is yours​

Some may phase it in over 2 years or 5 years or however they design the retirement plan.

A competitive 401k -- like others have said -- will offer "index" mutual funds (looking for the word "index" in the fund name usually helps), which generally offer the lowest expense ratios...preferably below 1%...as close to 0% as possible. I'll be honest: even in entry-level jobs at smaller companies or universities, my best and only option was an S&P 500 Index Fund, and I just threw 100% of my 401k into that single fund and called it a day. I maintain a separate Roth IRA at Vanguard that lets me fill in the gaps so to speak with whatever else I want (e.g. a Total Stock Market Index Fund, Total International Stock Index Fund, etc.).

If you decide to take this job offer, you won't really have to worry about the 401k until almost one year from now, so in the meantime focus on other priorities like emergency fund, Roth IRA, paying off credit card debt if any, etc. And maybe use this time to spend a few hours reading all the great free information from reputable sources on the Web! Knowledge is power, and boy howdy are there lots of people in the banking and finance and investment industry who want to deceive you into making poor money decisions...with a smile.
 
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tartesos

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Jan 24, 2011
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First pay off all your debt.
Next buy a house on a 15 year loan.
Save 10% of your income in your 401k while paying off your house.
Once your house is paid off save the extra.
If you can save more than the 10% do it!
Saving 5,000 a year from age 30 to age 60 will net you about 800k.
Didn’t know Dave Ramsey had an account on sdn.


Sent from my iPhone using SDN
 
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To be fair, Dave Ramsey recommends 15% into retirement accounts at baby step 4, not 10%.
 

sliceofbread136

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Nov 5, 2011
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Be sure to put it in “growth, aggressive growth, growth and income, international.” Just talk to a smartvestor pro
 

FutureInternist

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Aug 23, 2007
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First pay off all your debt.
Next buy a house on a 15 year loan.
Save 10% of your income in your 401k while paying off your house.
Once your house is paid off save the extra.
If you can save more than the 10% do it!
Saving 5,000 a year from age 30 to age 60 will net you about 800k.
Agree, but would prioritise a 3-6 month emergency fund
 

dpmd

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Or, you could follow what I said above (and what wci and other folks recommend) and be worth more than that more than 20 yrs earlier
 

FutureInternist

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Aug 23, 2007
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468
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So at age 60 you’d be worth 800k?
That part I missed... not sure what they meant by saving 5K a year for 30 years (just put in bank?)
We definitely get split in multiple ways - School loans, house loans, car loans, save for emergency fund, save for retirement, save for kids college....., so it can be overwhelming to try and prioritise since whenever you put $ into one avenue, you’re left wondering if putting it somewhere else would have been more beneficial
That $ should be invested in Vanguard Index Funds etc, but given that credentialing at a new hospital can take up to 3 months AFTER the interview, it is even more important for us to have an emergency fund
 
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goldsummer

7+ Year Member
Jan 20, 2013
46
26
Status
Pre-Medical
Thanks for your input everyone!

Gotta compare apples to apples, really, as a 401k in an entry-level job (I notice you are pre-med but I don't know your age or work experience or skillset necessarily if you are non-trad) vs. a 401k in a large, generous, profitable corporation could potentially differ greatly. Especially if your skillset is in great demand and rare and you are in an employee's market, a corporation will have to compete for your attention.

IMO a match that starts after 1 year of employment is not competitive compared to a match that starts the first day of the first month after the employment start date, for example. Your delayed match tells me this is an entry-level job with potentially high turnover, or they expect you to jump ship to greener pastures sooner than later. BUT any match is still better than nothing! My last gig was at a formerly Fortune ~400 corporation that had declared bankruptcy and was $1B in debt and was circling the drain, so they made the match 0% then finally 1%. I really miss this one company that matched 7% guaranteed + a discretionary bonus match of up to another 3-4% based on how the company was doing at the end of the year. It's worth shopping around for employers that "treat you well" as all that extra several thousand $$$ here and there early in your career will affect how much your nest egg can grow. Don't settle for "meh" benefits unless you don't have any other options. :)

What's the vesting schedule for the match? A competitive vesting schedule is 100% vesting immediately; i.e., what the employer chips in for the match is immediately yours, in which case it would be wise to contribute the maximum 4% to your 401k as soon as you reach the 1 year mark.

It's common, unfortunately, for employers to phase in the vesting; e.g.:

After 1 year - 25% of the employer match is yours​
After 2 years - 50% is yours​
3 years - 75% is yours​
4+ years - 100% is yours​

Some may phase it in over 2 years or 5 years or however they design the retirement plan.

A competitive 401k -- like others have said -- will offer "index" mutual funds (looking for the word "index" in the fund name usually helps), which generally offer the lowest expense ratios...preferably below 1%...as close to 0% as possible. I'll be honest: even in entry-level jobs at smaller companies or universities, my best and only option was an S&P 500 Index Fund, and I just threw 100% of my 401k into that single fund and called it a day. I maintain a separate Roth IRA at Vanguard that lets me fill in the gaps so to speak with whatever else I want (e.g. a Total Stock Market Index Fund, Total International Stock Index Fund, etc.).

If you decide to take this job offer, you won't really have to worry about the 401k until almost one year from now, so in the meantime focus on other priorities like emergency fund, Roth IRA, paying off credit card debt if any, etc. And maybe use this time to spend a few hours reading all the great free information from reputable sources on the Web! Knowledge is power, and boy howdy are there lots of people in the banking and finance and investment industry who want to deceive you into making poor money decisions...with a smile.
Thanks for the detailed response. I’m actually in my last year of residency, and this job will be my first attending position as a PCP. I gotta eventually change that pre-med status lol.

The vesting schedule is 100% of 4% after I’ve been employed with them for 1 year.
Its a large, succesful company.
Its interesting you think delaying it one year means they might be anticipating high turnover, because I also got that vibe, they also have no non compete Clause and I can quit at any time with no penalty, just need to give 90 days notice. But I viewed this as a good thing, especially when comparing with other contracts which basically make you sign your life away for x amount of years or face unreasonable penalties.

Thanks for the advice :)
 

Baron Samedi

7+ Year Member
May 30, 2010
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If you follow the advice given you above and end up as a 60 year old physician with a 30 year career and a net worth of 800k...that is dismally poor and you are looking at either a barebones retirement or continuing employment past that age. That is just a terrible strategy for anyone in medicine. You would have to be almost literally burning money to have that little in assets at that age and career length at even the low end of physician earnings.

The best 401k is the one you have access to and contribute to. Investing in an even below-average quality 401k is almost always better than investing outside of your 401k in a taxable brokerage account or other similar investments.

A vesting period is common. A 4% match is great and you should definitely utilize it. It's free money and at a bare minimum you should contribute enough to meet the match. After that, you should build up some liquid capital for a "rainy day" fund -- most recommend 3-6 months of expenses but what you do depends on your own personal situation(single income? dual income? high COL? low COL? ability to find a job quickly?)

What you do after the match depends on numbers and the quality of the 401k.

Do you have debt with interests rates similar to or higher than the likely returns of the indices in your 401k? If so, you should prioritize paying those debts first as those have a guaranteed higher rate of return(the interest rate).

Does your IRA have more attractive investing options than what's available in your 401k? If so, then you should consider maximizing those contributions prior to contributing above the match into your 401k.

As a physician, your target within a few years of graduating residency should be to be debt free and maxing out both your 401k and IRA every single year. After that, things get more complicated as you further expand your passive income sources.
 

TheHungarianCPAPFS

CPA, CFP, IAR,Life Agent here to advise
Jan 14, 2020
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Los Angeles, CA
www.erkfc.com
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Non-Student
Normally a bigger the match and the more they match and the sooner the company matches the better the offer. You have to watch for the following:

1) What is the match %: Usually 3-5%
2) How much does the company match: Usually they match something like 4% in your case of your entire salary, or what you put in. In your case, it seems that they are matching your entire salary, which is called the SHNEC (Safe Harbor Non Elective Contribution), so that the older doctors and highly compensated executives are not limited to a % of what the rank and file employees are putting away. So if you have a $100K salary, they will put away $4K on your behalf and of course you can still put away the $19,500 into your 401(k).
3) What type of plan do they have: It seems the company only has 401(k) plan but not a profit sharing. If they had a profit sharing component, then the company would decide to give you more $$, depending on what the management decides. It is not required, but for the privilege of having a profit sharing plan, they would have to give you an additional 1% matching of your salary. Depending on your plan however, you might have to earn the 4% over a 5 year tier where each year you will earn 20% of the matching that was put into your account.
4) How long is the wait time: The usual wait time is 1 year. The less time the better for you, since you can put the $19,500 401(k) away sooner and your matching also comes into your account sooner, since you earned it faster.

So it seems that your company has the industry standard 4% SHNEC retirement plan. Hope this helps.
 
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