How to convince my co-worker to invest more?

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LiterallyIronic
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How to convince my co-worker to invest more?

Post by LiterallyIronic » Mon Jun 11, 2018 10:43 am

My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?

MotoTrojan
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Re: How to convince my co-worker to invest more?

Post by MotoTrojan » Mon Jun 11, 2018 10:45 am

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
Explain the 4% withdrawal rule. $1M sounds like a lot. $40K/yr does not.

Wellfleet
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Re: How to convince my co-worker to invest more?

Post by Wellfleet » Mon Jun 11, 2018 10:45 am

I think the consensus around here is to give them a copy of If You Can, and then never talk about it again.

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Re: How to convince my co-worker to invest more?

Post by KlangFool » Mon Jun 11, 2018 10:49 am

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
LiterallyIronic,

1) You are trying to tell 26 years old that he/she will not have enough money at retirement aka 20+ years later. You will be ignored. I would ignore you too.

2) A better way is to explain how he/she is paying too much tax now. He/she should put more money into the tax-deferred accounts. Then, he/she could withdraw the money later and pay less tax. It does not have to be at retirement age.

https://www.madfientist.com/how-to-acce ... nds-early/

3) In summary, those are tax-advantaged accounts. They are tax management tools. They are not retirement accounts.

KlangFool

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Re: How to convince my co-worker to invest more?

Post by 123 » Mon Jun 11, 2018 10:50 am

Wellfleet wrote:
Mon Jun 11, 2018 10:45 am
I think the consensus around here is to give them a copy of If You Can, and then never talk about it again.
+1 Well said.
The closest helping hand is at the end of your own arm.

LiterallyIronic
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Re: How to convince my co-worker to invest more?

Post by LiterallyIronic » Mon Jun 11, 2018 10:53 am

Wellfleet wrote:
Mon Jun 11, 2018 10:45 am
I think the consensus around here is to give them a copy of If You Can, and then never talk about it again.
I'm not familiar with that book. The one that I really liked reading was Making The Most Of Your Money Now (https://www.amazon.com/Making-Most-Your ... inn+bryant), but being that it's 1200 pages long, I doubt he'd read it. :oops:

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Re: How to convince my co-worker to invest more?

Post by livesoft » Mon Jun 11, 2018 10:58 am

I'd ask them about their emergency fund. :twisted: I am pretty sure my kids have a $0.00 emergency fund held at Dad Financial Services.
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Re: How to convince my co-worker to invest more?

Post by 22twain » Mon Jun 11, 2018 11:09 am

When I was 26, I was halfway through my Ph.D. studies. I didn't start saving "officially" for retirement until I became eligible for a 403(b) plan during my first teaching job after grad school, at the ripe old age of 30. I retired 33 years later. My wife, also a college professor, had a similar career trajectory. We're doing fine so far.
My investing princiPLEs do not include absolutely preserving princiPAL.

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Re: How to convince my co-worker to invest more?

Post by Flyer24 » Mon Jun 11, 2018 11:14 am

I don’t think you should push him. He just finished college. At least he is saving something which is more than most people his age. Give him time to learn to be in the real world first. Retirement should not be the top priority. He first needs to learn to budget and stay out of debt. Over time he will adjust his retirement. He is still quite young. He could probably more use a life coach mentor than a retirement planning mentor right now.
Last edited by Flyer24 on Mon Jun 11, 2018 11:21 am, edited 1 time in total.

LiterallyIronic
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Re: How to convince my co-worker to invest more?

Post by LiterallyIronic » Mon Jun 11, 2018 11:19 am

22twain wrote:
Mon Jun 11, 2018 11:09 am
When I was 26, I was halfway through my Ph.D. studies. I didn't start saving "officially" for retirement until I became eligible for a 403(b) plan during my first teaching job after grad school, at the ripe old age of 30. I retired 33 years later. My wife, also a college professor, had a similar career trajectory. We're doing fine so far.
Believe me, I know about starting late - I didn't finish school until I was 32 (and I don't have a Ph.D., or even a Masters). It's not a good thing.

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Re: How to convince my co-worker to invest more?

Post by nisiprius » Mon Jun 11, 2018 11:23 am

It's great that he has some kind of automatic savings set up. Don't push. Praise him for what he's gotten done. It's easy to increase an automatic savings plan if you have one. Let it rest for a year or so. If he mentions getting a raise, you could suggest that whenever you get a raise is a good time to consider bumping up your savings--maybe save half the increase.
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Re: How to convince my co-worker to invest more?

Post by golfCaddy » Mon Jun 11, 2018 11:28 am

You don't. He could be trying to save up enough money to make a down-payment on a house or condo first or to buy a car. Or, if there's ever a time to spend, it's when you are his age. You only have your twenties once and life's a lot less fun at 36 than 26. Give him a copy of the bogleheads guide to investing and leave it at that.

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Re: How to convince my co-worker to invest more?

Post by PVW » Mon Jun 11, 2018 12:14 pm

Changing someone's attitude toward personal finance can be like changing their politics.

Share your wisdom, limit your expectations of action. Maybe you can gain his respect and serve as a mentor. Maybe this effort will just be practice for the next student.

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Re: How to convince my co-worker to invest more?

Post by celia » Mon Jun 11, 2018 12:24 pm

Back off talking to him about money for at least 6 months. He just got a huge increase in income and it will take time to adjust to it mentally. What is more important for him at this point is setting up and following a budget. I assume he needs to move out of student housing in the next two months so other students can move in. Then there are other expenses that will go with that (furniture, cooking utensils, utilities, even toilet paper).

He is an adult and now is the time to make his own decisions, not what you or anyone else suggests he do. It is ok to make mistakes because that is how we learn (and they tend to cost less than if he was in his fifties). He has a lot of time ahead of him to save for retirement. Why do you want him to think about exiting the work force when he just got in?
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teen persuasion
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Re: How to convince my co-worker to invest more?

Post by teen persuasion » Mon Jun 11, 2018 12:38 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
MMM's Shockingly Simple Math Behind Early Retirement should show him that 3% is not nearly enough, if 5% takes 66 years to reach your number.

http://www.mrmoneymustache.com/2012/01 ... etirement/

However, if he won't budge from 3%, he might completely shut down on saving at higher rates if he views that MMM chart as impossible rather than enlightening. Everybody is different; I viewed it as a challenge, and kept tweaking our savings rate higher to see how quickly we could reach FIRE (after starting late).

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Re: How to convince my co-worker to invest more?

Post by mptfan » Mon Jun 11, 2018 12:45 pm

Did your co-worker ask for your advice? If the answer is no, then stay out of it, it's none of your business.

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Re: How to convince my co-worker to invest more?

Post by LiterallyIronic » Mon Jun 11, 2018 12:53 pm

mptfan wrote:
Mon Jun 11, 2018 12:45 pm
Did your co-worker ask for your advice? If the answer is no, then stay out of it, it's none of your business.
Well, yeah. He asks me questions all the time like "What's the difference between an IRA and a 401k?" When we switched 401k providers last year, everyone on my team met in my office to ask me questions. But I only offer advice if they're looking for it - I have a co-worker once say, "I need to pay off my current credit cards before I get another one," but it wasn't in an "asking for advice" kind of way, so I didn't say anything about avalanche vs snowball or anything.

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Re: How to convince my co-worker to invest more?

Post by cfs » Mon Jun 11, 2018 12:59 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:53 am
. . . I'm not familiar with that book . . .
IF YOU CAN . . . Here, you can download a copy for free and pass to your friend. Good luck, y gracias por leer ~cfs~

https://www.etf.com/docs/IfYouCan.pdf
~ Member of the Active Retired Force since 2014 ~

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Re: How to convince my co-worker to invest more?

Post by ClevrChico » Mon Jun 11, 2018 1:00 pm

I wouldn't say a thing. Over the years, I've tried to alert coworkers to benefit or law changes with a heads up, only followed by the sound of crickets.

The only response I ever received was when I discovered the company messed up our state withholding. I was asked how I found the problem by one coworker. :|

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Re: How to convince my co-worker to invest more?

Post by dknightd » Mon Jun 11, 2018 1:15 pm

you mentioned it once. the seed has been planted

delamer
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Re: How to convince my co-worker to invest more?

Post by delamer » Mon Jun 11, 2018 1:24 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 12:53 pm
mptfan wrote:
Mon Jun 11, 2018 12:45 pm
Did your co-worker ask for your advice? If the answer is no, then stay out of it, it's none of your business.
Well, yeah. He asks me questions all the time like "What's the difference between an IRA and a 401k?" When we switched 401k providers last year, everyone on my team met in my office to ask me questions. But I only offer advice if they're looking for it - I have a co-worker once say, "I need to pay off my current credit cards before I get another one," but it wasn't in an "asking for advice" kind of way, so I didn't say anything about avalanche vs snowball or anything.

Answering questions about the mechanics of investing is different than what you are considering.

If you are much more senior than this co-worker (and especially if you are his boss), you could put him in the very awkward position of feeling that it will disadvantage his career if he does not go along with your suggestions about how to spend/save his money.
Last edited by delamer on Mon Jun 11, 2018 1:39 pm, edited 1 time in total.

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Re: How to convince my co-worker to invest more?

Post by pkcrafter » Mon Jun 11, 2018 1:30 pm

Here is a link to Bernstein's If You Can...

https://www.etf.com/docs/IfYouCan.pdf

Bogleheads usually recommend min. of 12% of income goes to retirement saving, but more importantly, friend has got to grasp a few simple fundamentals.

I think I would also explain costs to him. A high cost 401k with no match has only one advantage--the tax reduction on contributions; however, if he opts for Roth, he's not getting that either.

Impact of costs

https://www.nerdwallet.com/blog/investi ... gs-impact/

If this does not turn the light on, stop trying.


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Re: How to convince my co-worker to invest more?

Post by PVW » Mon Jun 11, 2018 1:55 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 12:53 pm
mptfan wrote:
Mon Jun 11, 2018 12:45 pm
Did your co-worker ask for your advice? If the answer is no, then stay out of it, it's none of your business.
Well, yeah. He asks me questions all the time like "What's the difference between an IRA and a 401k?" When we switched 401k providers last year, everyone on my team met in my office to ask me questions. But I only offer advice if they're looking for it - I have a co-worker once say, "I need to pay off my current credit cards before I get another one," but it wasn't in an "asking for advice" kind of way, so I didn't say anything about avalanche vs snowball or anything.
Looks like you are in a position to have a positive impact.

The 1st step is to figure out why he thinks 3% is enough. Maybe he's not putting much thought into his financial future, and 3% is just the amount of money he is willing to do without. Maybe he thinks 3% will be enough to retire on. Maybe he thinks 3% will get you off his back.

Then I can see 2 possible areas; 1) either he doesn't understand savings and financial independence and you can show him some numbers about saving, compound interest, 4% rule, etc., or 2) he has a general understanding of saving for financial independence, but he is confused by the choices. Figuring out where and how to invest is a quite daunting task, especially if he has been influenced by a professional financial advisor.

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Re: How to convince my co-worker to invest more?

Post by goingup » Mon Jun 11, 2018 2:08 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).
I think telling your co-workers to forego the 401K is poor advice. A 401K is an automated payroll deduction. It's usually completely painless and the most effortless way to accrue wealth that I know of. If you think most 26 year olds have the sustained attention span it takes to open and fund a Roth IRA you have a different set of observations than I do.

Tell your co-worker that you frequent an Internet forum where there are a ton of 401K millionaires, who started saving 10-15% of their paycheck 25 years ago and have let automation and compounding make them wealthy. :beer

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Re: How to convince my co-worker to invest more?

Post by ReadyOrNot » Mon Jun 11, 2018 2:14 pm

Ask what percentage Social Security takes, and if your co-worker thinks Social Security, thought to provide a decent return if it were considered an equivalent investment and insurance, will provide a good enough retirement. If not, wouldn't you want to save and invest at a somewhat higher rate than you are putting into Social Security?
If Social Security is plenty, then let it go.

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Re: How to convince my co-worker to invest more?

Post by LiterallyIronic » Mon Jun 11, 2018 2:36 pm

cfs wrote:
Mon Jun 11, 2018 12:59 pm
LiterallyIronic wrote:
Mon Jun 11, 2018 10:53 am
. . . I'm not familiar with that book . . .
IF YOU CAN . . . Here, you can download a copy for free and pass to your friend. Good luck, y gracias por leer ~cfs~

https://www.etf.com/docs/IfYouCan.pdf
Thanks.
delamer wrote:
Mon Jun 11, 2018 1:24 pm
If you are much more senior than this co-worker (and especially if you are his boss), you could put him in the very awkward position of feeling that it will disadvantage his career if he does not go along with your suggestions about how to spend/save his money.
Don't worry, we're on the same level. He has longer tenure at this company and probably earns more money than me. I've been out of university for 1.5 years (but I'm 34)
goingup wrote:
Mon Jun 11, 2018 2:08 pm

I think telling your co-workers to forego the 401K is poor advice. A 401K is an automated payroll deduction. It's usually completely painless and the most effortless way to accrue wealth that I know of.
But having Vanguard pull monthly from your account isn't that much tougher. :beer

I know he wants to do a Roth IRA, but got confused and set up a Roth 401k instead. Maybe I'll just wait until he says, "Hey, I got that straightened out and I have an IRA now" and then I'll say, "Nice! Got that 5% on automatic, right?" Other than that, I'll just link him to If You Can and let it ride.

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Re: How to convince my co-worker to invest more?

Post by stoptothink » Mon Jun 11, 2018 2:36 pm

123 wrote:
Mon Jun 11, 2018 10:50 am
Wellfleet wrote:
Mon Jun 11, 2018 10:45 am
I think the consensus around here is to give them a copy of If You Can, and then never talk about it again.
+1 Well said.
+1. Of course you want to help, but ask yourself what is the upside for you? Provide them information and get out of the way unless they ask you.

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Re: How to convince my co-worker to invest more?

Post by Flyer24 » Mon Jun 11, 2018 2:52 pm

goingup wrote:
Mon Jun 11, 2018 2:08 pm
LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).
I think telling your co-workers to forego the 401K is poor advice. A 401K is an automated payroll deduction. It's usually completely painless and the most effortless way to accrue wealth that I know of. If you think most 26 year olds have the sustained attention span it takes to open and fund a Roth IRA you have a different set of observations than I do.

Tell your co-worker that you frequent an Internet forum where there are a ton of 401K millionaires, who started saving 10-15% of their paycheck 25 years ago and have let automation and compounding make them wealthy. :beer
I was thinking the same thing. I think he will tend to save more initially by having it automatically taken out of his paycheck. Plus he can setup to increase the percentage annually. The expense ratio shouldn’t matter at this early stage. Let him get used to managing his money first. If you don’t think he is saving enough then the 401k should be the best choice.

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Re: How to convince my co-worker to invest more?

Post by megabad » Mon Jun 11, 2018 2:55 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
How do I explain to him that that's not enough?
Explain with action. I would argue that your 401k (unless at a very small company) is very borderline in terms of the company's/administrators fiduciary ERISA duties and certainly does a disservice to the company's employees. I would voice my concern over this to my HR department or responsible party. These steps are likely save him 2/3 in fees allowing his 3% 401k savings to go much further without requiring him to save one penny more. What better ammunition to explain saving for retirement to him then by explaining this course of action?

PS. Agree with the numerous posts about being cautious when offering advice. Coworker sounds like he is in better shape financially at 26 than many are at much older. I found that at 26, when older folks wanted to "explain" things to me, I would examine their lives and base whether I listened to what they said on the apparent outcome of their lives. I didn't listen very often, but always said thank you for the advice. Now that I am older, I find that younger people now listen very little to my "explanations" as well.

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Re: How to convince my co-worker to invest more?

Post by deltaneutral83 » Mon Jun 11, 2018 3:15 pm

goingup wrote:
Mon Jun 11, 2018 2:08 pm
I think telling your co-workers to forego the 401K is poor advice. A 401K is an automated payroll deduction. It's usually completely painless and the most effortless way to accrue wealth that I know of. If you think most 26 year olds have the sustained attention span it takes to open and fund a Roth IRA you have a different set of observations than I do.
Perhaps and perhaps not. Calling TDA and opening a Roth and transferring in whatever amount either all at once or transferring it in every quarter and purchasing a commission free TSM ETF isn't much more than an hour. 1.7% expense ratios in a 401k with no match is worth avoiding in terms of maxing out the Roth first at .04 ER for TSM index. I'm sure the OP would have no problem hanging over the shoulder while his buddy made the call. Inf act, you may even be able to do it online. Could do the same thing most likely with Schwab or Fido although I know TDA has commission free ETFs and no minimums because I have my HSA with them.

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Re: How to convince my co-worker to invest more?

Post by JakeyLee » Mon Jun 11, 2018 4:18 pm

I have become the "go to guy" at work with the younger employees in regards to 401k, retirement, etc.. I NEVER push. I provide the different options, on-line calculators, and general access to resources. I have found throughout the years that pointing out the tax savings angle has the most successful impact when urging employees to contribute more than the minimum.. of course, it usually takes a couple tax seasons before the light bulb goes on.

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Re: How to convince my co-worker to invest more?

Post by Mr.BB » Mon Jun 11, 2018 4:21 pm

Definitely get him the book. I also like simple examples. You could show him on a savings calculator the difference over 40 years what an increase in his savings to the 401k will make (hundred of thousands of dollars), versus waiting 5 or 8 years before he starts increasing, the numbers are staggering.
"We are what we repeatedly do. Excellence, then, is not an act, but a habit."

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Re: How to convince my co-worker to invest more?

Post by mtn biker » Mon Jun 11, 2018 4:29 pm

Ask questions and let him talk. People want to be heard, so start there. Ask what his goals are. Ask how much his savings will add up to over time. Just seek to draw him out into conversation without any real agenda.

Answer questions as they come up, but not before. If he doesn't ask, then keep asking him questions. If he get's sick of your questions, stop asking.

Eventually either he will ask the right question, or he will stop answering your questions in a way that continues the conversation. Either is fine, it's his choice, but it's great of you to be looking out for him like that.

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Re: How to convince my co-worker to invest more?

Post by goingup » Mon Jun 11, 2018 4:31 pm

deltaneutral83 wrote:
Mon Jun 11, 2018 3:15 pm
goingup wrote:
Mon Jun 11, 2018 2:08 pm
I think telling your co-workers to forego the 401K is poor advice. A 401K is an automated payroll deduction. It's usually completely painless and the most effortless way to accrue wealth that I know of. If you think most 26 year olds have the sustained attention span it takes to open and fund a Roth IRA you have a different set of observations than I do.
Perhaps and perhaps not. Calling TDA and opening a Roth and transferring in whatever amount either all at once or transferring it in every quarter and purchasing a commission free TSM ETF isn't much more than an hour. 1.7% expense ratios in a 401k with no match is worth avoiding in terms of maxing out the Roth first at .04 ER for TSM index. I'm sure the OP would have no problem hanging over the shoulder while his buddy made the call. Inf act, you may even be able to do it online. Could do the same thing most likely with Schwab or Fido although I know TDA has commission free ETFs and no minimums because I have my HSA with them.
deltaneutral83-
Opening a TDA Roth IRA is a great plan in addition to contributing to a 401K. But, I think there's nothing easier and more perpetual than setting up a % contribution to a 401K. Contribution limits are so much higher at $18.5K in the 401K than the IRA limit of $5.5K. It's also probably harder to derail 401K contributions than it is for a young investor to stop his/her IRA contributions. High fees have never been the Achilles heal of wealth accrual--it's uneven and poor investor behavior.

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Re: How to convince my co-worker to invest more?

Post by tesuzuki2002 » Mon Jun 11, 2018 4:33 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
Show him your're in your 30s and you're a millionaire and then perhaps... just maybe he will give a little more thought to it...
;)

you can't make anyone do it... the joke is on him in 10 years!!

PFInterest
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Re: How to convince my co-worker to invest more?

Post by PFInterest » Mon Jun 11, 2018 4:39 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
You don't. You already messed up 1 thing. Don't let him think you'll mess up more.

LiterallyIronic
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Re: How to convince my co-worker to invest more?

Post by LiterallyIronic » Mon Jun 11, 2018 5:04 pm

PFInterest wrote:
Mon Jun 11, 2018 4:39 pm
LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
You don't. You already messed up 1 thing. Don't let him think you'll mess up more.
What one thing did I mess up? Recommending an IRA over our terrible 401k? He's the one that took the 401k packet home, showed it to his dad, and got told by his dad that the Roth portion of the 401k packet was a Roth IRA. He didn't end up with what he wanted because he's listened to his dad. Can't really blame him for following his dad's advice, though.

dharrythomas
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Re: How to convince my co-worker to invest more?

Post by dharrythomas » Mon Jun 11, 2018 5:20 pm

Show him a compound interest table and say "it's amazing how much less you can save on a regular basis if you start early.

Thanks for what you are doing. I talked to a colleague that said none of her supervisors in about a decade had talked to her about the TSP. I talked to each of my subordinates and even pitched the TSP to Army Reserve Soldiers that didn't get a match. I feel an obligation to pitch the opportunity to them.

PFInterest
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Re: How to convince my co-worker to invest more?

Post by PFInterest » Mon Jun 11, 2018 5:29 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 5:04 pm
PFInterest wrote:
Mon Jun 11, 2018 4:39 pm
LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
My 26-year-old co-worker just graduated university a month ago and has moved from part-time to full-time. That gave him a big bump in pay and access to our (terrible) 401k. I always tell people on my team at work to do an IRA before our 401k because of the limited 401k options we have and the 1.6% expense ratios (we get no company match).

Anyway, he thought the Roth 401k option was a Roth IRA and set it up to take 3% of his after-tax income. So that's what he has instead of a Roth (or Traditional) IRA. He has no spouse (or prospects :( ), no kids, and lives in a student apartment with roommates. No student loans. Tons of expendable income (aside from a car that he leased), but he doesn't want to invest more than 3% of net.

How do I explain to him that that's not enough?
You don't. You already messed up 1 thing. Don't let him think you'll mess up more.
What one thing did I mess up? Recommending an IRA over our terrible 401k? He's the one that took the 401k packet home, showed it to his dad, and got told by his dad that the Roth portion of the 401k packet was a Roth IRA. He didn't end up with what he wanted because he's listened to his dad. Can't really blame him for following his dad's advice, though.
That's the joke. He could blame you for messing up. Not worth the hassle.

J295
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Re: How to convince my co-worker to invest more?

Post by J295 » Mon Jun 11, 2018 9:33 pm

I’m all for saving, and have demonstrated it throughout my earning years and people knew it. If they had questions, I answered and helped them. If they didn’t ask, I didn’t offer any help. Retired from full-time work at age 53

A member of our team that worked closely with me didn’t have a high income and didn’t save. He brought me all of his financial information and asked for advice, and I helped him. He still didn’t really save and wasn’t motivated to follow my advice. No problem from my end, and no judgment from my side of the table. He was single and had no debt. He loved sports teams from his hometown and spent his money following them. Well, sadly, a few years after that conversation he had a heart attack and died. He was in his 40s. He had not saved a lot of money, but he had a full life enjoying the things that were important to him.

Really rather odd how that all worked out. Honestly, I’m not sure I have any point to sharing it, but it seemed to fit a little bit into this conversation.

I still recommend saving and wise investing, but only when asked.

marcopolo
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Re: How to convince my co-worker to invest more?

Post by marcopolo » Mon Jun 11, 2018 10:26 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 11:19 am
22twain wrote:
Mon Jun 11, 2018 11:09 am
When I was 26, I was halfway through my Ph.D. studies. I didn't start saving "officially" for retirement until I became eligible for a 403(b) plan during my first teaching job after grad school, at the ripe old age of 30. I retired 33 years later. My wife, also a college professor, had a similar career trajectory. We're doing fine so far.
Believe me, I know about starting late - I didn't finish school until I was 32 (and I don't have a Ph.D., or even a Masters). It's not a good thing.
It can be.

I am all for high savings rate and getting financial independence. But, you have to balance that against enjoying life as well.
Just focusing on high savings rate could cause you to miss a lot of opportunities to do things while you are still young (and stupid!) enough to try them.
In my 20's, I had a pretty good paying job, but i saved almost nothing. I did all sort fun and adventurous things, many of which i would not even attempt to do in my 50s and 60s, lots of youthful indiscretions. Eventually went back to grad school, and finished PhD at the age of 32, had a family and focused on preparing for retirement, while still enjoying a lot of adventurous activities/travel. Sure, I might be a bit better off financially if i had saved more in my 20's, but looking back on all the memories, I have absolutely no regrets.

A gentle suggestion to your colleague might be reasonable, but in the end he/she has to make their own decisions on where to draw the balance.
Once in a while you get shown the light, in the strangest of places if you look at it right.

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Sandtrap
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Re: How to convince my co-worker to invest more?

Post by Sandtrap » Mon Jun 11, 2018 11:56 pm

The best way to explain things to your co-worker is to email him/her a link to the forum.

(lead the horse to water and all that. . . )

bantam222
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Re: How to convince my co-worker to invest more?

Post by bantam222 » Tue Jun 12, 2018 3:32 am

Don’t overstep your boundaries. You can drop a hint and be open for questions if they are interested but don’t push it if they don’t seem engaged.

Your co worker could easily be super engaged on a fitness or neutrition or anti-smoking or <insert your vice here> forum. How would you feel if they bugged you about your lunch everyday telling you it needs to be healthier.

This is the exact same thing imo. End of the day you need to let people make their own decisions. Especially if it’s only a co worker relationship.

juliewongferra
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Re: How to convince my co-worker to invest more?

Post by juliewongferra » Tue Jun 12, 2018 12:43 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 12:53 pm
mptfan wrote:
Mon Jun 11, 2018 12:45 pm
Did your co-worker ask for your advice? If the answer is no, then stay out of it, it's none of your business.
Well, yeah. He asks me questions all the time like "What's the difference between an IRA and a 401k?" When we switched 401k providers last year, everyone on my team met in my office to ask me questions. But I only offer advice if they're looking for it - I have a co-worker once say, "I need to pay off my current credit cards before I get another one," but it wasn't in an "asking for advice" kind of way, so I didn't say anything about avalanche vs snowball or anything.
How did you become the investing guru? LOL

Seriously, stay out of it. My HR department tells me, and I understand, that there is a clear boundary between providing education (okay) and advice (definitely not okay). If you're holding office hours on things like this, especially if you are in HR, you are violating fiduciary rules (or something). Best is to send anyone with questions to someone whose job it is to advise on these things. Does the plan administrator have an office to provide advice? Do you have an EAP with financial counselors?

For the good of you coworkers, and for your own good, stay away from these conversations...even if (and especially if) you are explicitly asked for advice!!

cheers!
jwf

juliewongferra
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Re: How to convince my co-worker to invest more?

Post by juliewongferra » Tue Jun 12, 2018 12:47 pm

JakeyLee wrote:
Mon Jun 11, 2018 4:18 pm
I have become the "go to guy" at work with the younger employees in regards to 401k, retirement, etc.. I NEVER push. I provide the different options, on-line calculators, and general access to resources. I have found throughout the years that pointing out the tax savings angle has the most successful impact when urging employees to contribute more than the minimum.. of course, it usually takes a couple tax seasons before the light bulb goes on.
JakeyLee has it right. Provide information and educate, but never push.

Making recommendations to do an IRA before the 401k and specific investing amounts is heading down a bad path.

cheers!
jwf

pennylane
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Re: How to convince my co-worker to invest more?

Post by pennylane » Tue Jun 12, 2018 12:53 pm

Who cares.. His problem.

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Elsebet
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Re: How to convince my co-worker to invest more?

Post by Elsebet » Tue Jun 12, 2018 2:07 pm

At my last job I talked to a younger co-worker a number of times about working towards maxing his 401k and Roth IRA and forwarded him the "If you Can" pdf. He didn't seem very interested but over the four years I was there I brought it up on occasion to reinforce the idea.

At my going away lunch, this same co-worker mentioned that he had indeed taken my advice and his 401k account was up to 50k already. He was really proud and said he was grateful for my advice. For me that moment was totally worth it, since someone did the same for me when I was 22 and I felt that I paid it forward.

I would advise being light but persistent when trying to get young people to save & invest.

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Pajamas
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Re: How to convince my co-worker to invest more?

Post by Pajamas » Tue Jun 12, 2018 2:29 pm

LiterallyIronic wrote:
Mon Jun 11, 2018 10:43 am
Anyway, he thought the Roth 401k option was a Roth IRA
My experience in the workplace has often been that it is a lack of knowledge. It is very daunting just to pick out what to invest in even in a limited-choice account. Some people don't even understand that a $1000 contribution may not decrease their paycheck by that amount because of taxes. Of course many people don't even know what their salary is, just what they take home in pay.

At my last workplace there were three different retirement plans and options such as pre- or post-tax investing plus a fairly large choice of investments (most very good) although one had completely mysterious proprietary funds that provided no information about their holdings even upon request. Good intentions on the part of the organization at providing very generous retirement options actually ended up causing a lot of people not to participate or not to fully participate (not contributing enough or choosing low-return options) because of the complexity.

So the advice being given to you to provide information is very appropriate. You can even arrange for someone to come to speak about the topic as it is usually covered only briefly during orientation and possibly at annual opportunities to talk to someone from the custodian.

Besides generally encouraging people to participate in the retirement plans, I would specifically encourage new hires to participate. If someone specifically asked, I would tell them what my choices were for the individual funds with the caution that those were the ones that were appropriate for me. Annual bonus or raise time is a good occasion to bring up the idea of increasing contributions when the additional contributions won't be missed from the paycheck in a meeting or just in conversation. A lot of people normally spend their entire paycheck so that is the only time it is reasonably going to happen unless they have one of those realizations about their finances that so often brings people to Bogleheads.

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