The Opportunity Costs of Changes for Some Companies’ 401k Plans

There are some news items that should be getting more coverage.  One particular example is that some companies in the US have been increasing the amounts their workers can save in their 401k plans.  The potential consequences for a well educated populace are enormous for securing their retirement.  If done correctly, thousands of US workers, if they are intelligent, can add hundreds of thousands if not millions of dollars to their net worth in retirement.  Let’s take a look at the bounty some American workers can now take advantage of.

Visa’s New Terms for its Employee’s 401k Plans

Visa announced that for its 401k plans, they will increase the match from 6% to 10%.  That is massive.  Imagine that a 25 year old making $50,000 a year works at Visa, and plans to make their career there.  That 25 year old, Willow if you will, will have far more money in retirement.  In the original scenario, Willow would save 6% of her salary and have it matched.  Let’s imagine she invests in an S&P 500 index fund, and for 40 years, gets the stock market’s past long term returns of 10%.  In this universe Willow would have over $2.6 million dollars in her 401k.  Not too shabby, but what happens in this new scenario that we now live in.  With Visa now matching up to 10%, and if we keep the other parameters the same, Willow would have over $4.4 million dollars.  That change that Visa made was worth almost two million dollars!  Congrats Visa employees!  Take advantage of it.

How About Aflac’s New Terms for its 401k Plans

Yeah I know, the quacking duck is about to get even more annoying with this.  Aflac increased its match from 50% on the first 4% of the employee’s contribution to 100%.  While not as extreme as Visa, the results are still impressive.  In the previous iteration of its 401k plan, a worker in Willows position at Visa, but working at Aflac, would retire with $1.3 million.  Not bad, but with the new terms going into effect, what are the long term results?  This worker would now retire with over $1.7 million, or $400,000 more.  If the S&P 500 is yielding two percent, that extra $400,000 would be paying that worker an extra $8,000 a year in dividends.

What it All Means

There were several other companies that increased their retirement contributions like Cigna and Honeywell, but I will let you look into those.  However, we can’t overlook the potential of what these companies were doing for their workers.  These companies are adding hundreds of thousands to millions of dollars to their employee’s future net worth if they are intelligent and take advantage of their opportunities.  If you work for a company that didn’t do anything, try agitating for change.  The opportunity cost is enormous.  If you don’t participate in your companies’ 401k plans, please start.  You are walking away from financial independence if you aren’t.