Kal brought up a subject in the main forum pertaining to Marshawn Lynch helping out "No E" on his 401K stuff that hit a raw nerve with me. I am astounded at the number of otherwise brilliant people that do not have a clue as to how to make smart investment decisions regarding their eventual retirement. Case in point: I recently had a new supervisor that I was mentoring, very bright, college educated, good parents, and so on. He's in his 20's, married, no kids, wife has a well paying job. They both have college loans they are paying off and one car payment they're working on, but otherwise, they are not hurting for money in the least and probably have more disposable income now than they will when they start punching out kids.
I asked him how much he was contributing to our company sponsored 401K and he said 2%. My jaw about hit the floor, as we have a 2 to 1 company match up to a maximum 4%, meaning he was getting just 1% from the company. He was unaware that he could get as much as 4% if he contributed 8%. We quickly got his contribution rate up to 8% as he had no problem being able to afford it. Then I asked him which type of fund he had his contributions in, the pre tax conventional 401K or the after tax Roth. He looked at me as if I were talking a foreign language.
One of the differences between a conventional and a Roth is that the conventional 401K is tax deferred, meaning that you don't pay taxes until you are ready to use it, the logic being that when you retire, you will be at a lower income and will pay taxes in a lower bracket than you would had you paid them when you were employed. In the Roth, you pay taxes on it up front at what ever bracket you happen to be in at the time.
But that's only one of the differences. Most people, especially our younger folks, do not realize that on a Roth, none of your account, including the earnings, is subject to taxes while on a conventional, the entire value of your account is subject to tax. And for me, it's beginning to look like when I retire, I might not be able to get my income low enough to where I could benefit from withdrawing my conventional 401K at the lower rate, so I won't be able to take advantage of the reduced tax anyway. Moral of the story is that if you have a Roth option, be sure that you're taking advantage of it.
Sorry to go into all those boring details, but my pet peeve and purpose for starting the thread is that neither employers or our schools and universities are teaching our younger generation the basics of sound retirement planning. I told the above story to our HR manager, said that we really need to get some people in here to educate our employees, and she said "great idea!". That was two years ago, and nothing ever happened. I have a 29 year old daughter, 7 years of college and who is now an RN, that is just as naïve as the supervisor I was mentoring. With more and more companies opting out of defined benefit programs, ie pensions, more and more responsibility for retirement planning is being passed onto the individual and they are not prepared, moreover, and what's worse is that no one seems to care.