As I stood in line this past Sunday at Wegmans, amidst the usual sea of candy bars, energy shots, and chewing gum, I was faced with a dilemma. As I stared down my favorite pack of gum, I couldn’t decide whether to buy or leave it alone. Luckily, my phone’s calculator helped my answer the question as I waited for those in front of me to cash out. Allow me to explain.
Our good friends at the IRS recently raised the contribution limit for 401(k) retirement plans by an additional $500 starting in 2013. This means the amount you are now able to save for retirement during this coming year is $17,500. Those over the age of 50 have an even sweeter deal, as the “catch-up” contribution of $5,500 that you’re allowed brings your maximum contribution to $23,000.
Now, I am not naïve enough to think that money grows on trees and we‘re all contributing the maximum amount right now and can easily add another $500 to that total. In fact, according to this CBS article, just 5% of participants nationwide are making the maximum contributions to their retirement accounts. That is understandable when you look at the cost of daycare, college tuition, and a single gallon of gasoline.
But consider this. Over the course of a year, $500 breaks down to approximately $1.40 each day. If you take that $500 and put it towards your retirement in each of the next 20 years, assuming a 5% yearly return, the extra $10,000 that you’ve contributed will be worth nearly $17,000.
Now I can answer the question – do I really need the gum?
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).