My Spouse’s 401K ~ What It Really Means
This may sound kind of silly, but for a long time, I didn’t really think about what a 401K is actually for. When my spouse got his job where we live now, we decided to put money into his 401K. We picked a really low percent (I think we started at 2%) rather randomly, and for me, without a lot of thought as to why we were doing it in the first place. His employer gives a match of 20% of the first 6% (so basically, for every 1% of his salary my spouse puts into the 401K his employer puts 0.2% for the first 6% of my spouse’s contributions) and we wanted to get some of that free money, but 6% was a lot it seemed so we signed up for a little. A little free money is better than none!
But, as I said, I didn’t give a whole lot of thought to what it really meant. I didn’t think about retirement as more than an abstract concept of “something in the future there is a lot of time until” and I didn’t think about how much money one might need to actually retire. The 401K was just another thing coming our of my spouse’s paycheck, like health insurance and taxes.
Since I’ve started this blog and gotten rather serious about debt reduction, I’ve also become rather serious about understanding money. And thinking about the future - not just tomorrow or next week but the far off future. And I’m very thankful we’ve been doing anything at all in regards to our 401K. We had increased it once to 3% at one point, but that was about it. When I started actually realizing “You know, someday, we’re going to have to LIVE on this money…” we increased it to 4%. And now, as of today, we have a plan to increase it at the first of the year to 5% and then after my spouse gets another raise, to 6% (around May hopefully) to completely take advantage of the company match.
And there’s more. I realize now that the 401K is actually us, saving money. And has been all along. I’ve thought a lot about how useless I have been in the past about saving money, and yet, I’ve been saving money for years without ever thinking too much about it. It was easy. And that’s the key. My spouse’s 401K is a simple, easy, and hardly noticeable, automated way for us to insure a secure retirement for ourselves.
You’d better believe I have a plan to take advantage of that fact.
Once we are all-but-mortgage-debt free, that 401K contribution will slowly but surely increase up to the maximum either allowed or that I decide after careful research is sufficient. Probably the maximum though. And the method to my madness? Celebration.
Want to celebrate that happy occurrence? Increase the 401K by a percent. Happy birthday! Increase that 401K by a percent. Good job solving that complicated project at work! Increase that 401K by a percent. Did you get a raise? Yippee! And increase the 401K by 2%. 
I don’t think it will take much more than a few years to get to the maximum allowed, and hopefully, without too much grumbling and belt tightening and even noticing. It’ll just be the new reality. And we’ll be happier for it later. Just wait until I start making some IRA plans…
This post is also part of Moolanomy’s “Share Your Investing Story” Project
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November 16th, 2007 at 3:58 pm
Thank you for sharing your story. A little self-promotion here. I’d welcome any Paidtwice readers to participate in the contest for a chance to get a free book. All you have to do is share your story on my contest page. Thank you!
November 16th, 2007 at 4:44 pm
What a happy realization!
November 16th, 2007 at 5:18 pm
Yeah, it’s an awesome plan. I look forward to the day when you can max out 401k.
November 16th, 2007 at 6:22 pm
I really like your idea of celebrating my birthday by adding 1% to my 401(k). I will definitely do that my next birthday!
Contributing the max to my 401(k) is one of my long-term goals.
November 16th, 2007 at 7:02 pm
You know, you’re saving even more because the money goes into the 401k as pre-tax dollars, so it lowers your taxable income. I don’t know the exact numbers as far as savings, but anything that’s paid with pre-tax dollars is a good thing!!
I also love the idea of increasing a percentage point for special occasions. We’re just doing the maximum that’s matched right now - once of the concessions to cutting our income in half so I can stay home with my son. Still, we may do this next time my husband gets a raise!
November 16th, 2007 at 8:30 pm
Excellent! It’s the stuff in the background that you get going into motion for later that can really make a huge difference! Great plan!
November 17th, 2007 at 7:41 am
One point that you didn’t make is that if you are a single income family (or if one partner is self-employed and/or freelance) that 401K contribution is all the more important because two people are basically relying on one retirement fund. My husband works for one of the big retirement companies (if not the top one) and thus we get great matching, so even though I am a SAHM, we max out our matched contribution and plan to increase it one percentage point at a time until we reach 20 % (the upper limit allowed by our company–I don’t know if this is a standard or not.)
And never, ever NEVER EVER take a loan out from your 401K. Under very dire circumstances only.
November 17th, 2007 at 8:37 am
A lot of times, the financial books say to save 10% of your paycheck for retirement. I have been putting 15% pre-tax in my 401k, so I use the after tax 10% for my emergency fund. So while it seems like I’m saving less than a book would recommend, I’m actually saving more. It’s been a year now, and I’m due a raise and a bonus in January. I have increased my 401k to 16%. I haven’t actually gotten the raise yet, so I have had to adjust my fun money slightly, but hopefully when I do get my raise, I’ll receive the same paycheck I’m currently receiving. If my paycheck is higher, I’ll put the extra in my emergency fund. I guess it’s a mind trick, but so far it’s working.
I’m glad you realized that the 2,3 or 4% you’re putting in your 401k is helping and you don’t have to do a thing except collect the company’s match and keep on truckin’.
Good post.
November 19th, 2007 at 2:07 am
contributing to a 401k is a great idea.
put in 10% - if it doesn’t hurt, you’re not putting in enough. you cannot not afford to contribute the minimum 10%!!! especially with the employer matching and tax breaks.
just make sure you invest 50% in foreign large caps. the US market seems dicey for the next year or so.
November 19th, 2007 at 10:09 am
10% would kill me right now. Seriously, it would. Slow and steady is our motto, which is why we are increasing it even when in debt, but jumping to 10% would cut about $250 off our takehome a month and to some people, that would be hardly noticable. To us, we’d go under.
it is fun living on the edge
But more than 10% is the goal! Someday soon.