“Please do not include my name or E-mail. I am 24 years old and have recently started to invest in the 401K. I am putting $45 a week into (Growth Company) and (Growth and Income) with Fidelity. Split 50/50. I have a total of about $2000 in there now. I just received my dividends for one of them and they were barely anything. How is it that I can make any money with these well known funds, when I am not getting big dividends? What if the price is at 45-50 for the next 10 years and then drops to 30 due to a market drop; without the dividends how can I make any money. Please try to help me out on this. I am very confused on how I am going to get ahead. Everyone I seem to ask is confused about it as well. They view the 401K just as a tax break.”

Well, and a good tax break it is, too. But it’s much more than that. While the market, and individual funds, will have their ups and downs, if you just keep plugging away at this with your current employer, and then one way or another with future employers (or via a Keogh Plan or S.E.P. if you should become self-employed), you will have a comfortable retirement.

At 24, of course, you can’t imagine ever being 60. But 60 isn’t ordinarily the end. By the time you’re 60, 36 years from now, you may well have yet another 36 years beyond that. Right now you may think those years won’t mean anything to you, but of course that’s ridiculous. There are lots of happy senior citizens, lots of unhappy senior citizens — and your being in this $45/week habit in the 36 working years immediately ahead makes it a lot more likely you’ll be one of the happier seniors in the second, leisure 36.

Let’s assume that you have $2,000 now and are contributing $45 a week, as you say. Let’s further assume that your 401(k) investments manage to earn 10% a year, although some years they will do worse, some better. Doesn’t sound like much, I know — $50 a quarter right now on $2,000. Fifty dollars is barely enough for dinner and a movie. Let’s further assume you up that $45 a week by 2% a year as your earning power grows — meaning, for example, that next year you’d up it from $45 to almost $46.

Apart from whatever other assets you wind up accumulating in life, that would put you, 36 years from now $908,159 ahead of the guy next to you who figured it wasn’t worth bothering with a 401(k) and spent the money on beers and a couple of Oasis and Spice Girls CDs each week. He winds up with a gut and some CDs long since rendered obsolete by whatever the prevalent music medium then is (telepathic disks?). You wind up with enough to withdraw a taxable income of $93,000 a year for 36 years (assuming the unwithdrawn portion continues to grow at 10% along the way).

Of course, if we average 3% inflation along the way, that $93,000 will really only be about $32,000 in today’s money at first, and just $11,500 by your final year. Which is why you have to do even more than the 401(k) if you want to build a really nice little fortune.

But it’s not bad for $45 a week. Especially since without the 401(k), a good chunk of that $45 would be whisked away by taxes anyway.

Don’t focus on the quarterly dividends. (And don’t worry about the literal dividends, if that’s what’s got you bugged. The stocks growth mutual funds invest in generally don’t pay dividends. The funds pay out paltry dividends, plus trading profits realized from selling stocks. But to the extent they don’t sell their winners, there’s nothing to distribute, just a higher share price for the fund.) Focus on the distant horizon.

Finally, if your company is like most, it kicks in a little of its own money, typically 25 or 50 cents, for each dollar you put in a 401(k). If that’s the case, then this is truly irresistible. Free money! You must promise me, in that case, you will always contribute every last dollar that qualifies for this matched contribution. The aforementioned $93,000 a year for 36 years would in that case be even 25% or 50% more.

Free money, Jeff! Free money!



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