Hi there!
Does anyone know of a good tool (or formula) to determine the benefits of max'ing your 401(k) at various times of the year? For example, if I max it in April vs October, how much more potential do I have to earn, etc.
Ideal would be a calculator that takes starting 401(k) balance into effect and, using the date entered, shows you how much you'd have extra in 5/10/20/etc years vs max'ing later.
Thanks for any advice!
be
Formula/tool to figure out benefits of max'ing 401(k) based on month
Re: Formula/tool to figure out benefits of max'ing 401(k) based on month
Sounds like market timing, the opposite of the bogleheads philosophy.
https://www.bogleheads.org/wiki/Boglehe ... philosophy
https://www.bogleheads.org/wiki/Boglehe ... philosophy

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 Joined: Thu Aug 25, 2016 6:52 pm
Re: Formula/tool to figure out benefits of max'ing 401(k) based on month
I don’t think this is market timing. It’s the traditional DCA vs lump sum investing question. I don’t see an easy way to compare month to month like you’re suggesting. You can compare monthly contribution with annual contributions on portfolio visualizer.
If you want a rough idea, then you can use the historic annualized returns of the S&P 500 (9.8%) which is 0.782% compound monthly growth rate. If fast max out occurs in 3 months and slow max out occurs in y months and 401k max is z.
You’d compare
z*1/3 *.00782^12 + z*2/3 * .00782^11 + z*3/3*.00782^10 + z*.00782^9 ....
against the same thing for y months. That’s the annual difference which you could compound for as many years as you want.
If you want a rough idea, then you can use the historic annualized returns of the S&P 500 (9.8%) which is 0.782% compound monthly growth rate. If fast max out occurs in 3 months and slow max out occurs in y months and 401k max is z.
You’d compare
z*1/3 *.00782^12 + z*2/3 * .00782^11 + z*3/3*.00782^10 + z*.00782^9 ....
against the same thing for y months. That’s the annual difference which you could compound for as many years as you want.
Re: Formula/tool to figure out benefits of max'ing 401(k) based on month
Say you invest $10,000 annually in your 401(k). If I understand correctly, benevo, you'd like to estimate how much more you'd have by investing $2,500 / month the first four months versus $1,000 / month the first 10 months. I developed a little spreadsheet that does this for the simple case of a constant monthly growth rate. Here it is assuming annualized growth of 5%. It shows that after 20 years, you'd have accumulated about $4,000 more by making your annual contribution over four months instead of ten.
Code: Select all
Row Col A Col B Col C Col D
1 Starting balance 0
2 Annual contribution 10,000
3 Annual growth rate 5.000000%
4 Monthly growth rate 0.407412%
5 Months to spread contribution 10 4
6 Value at end of year 10,268.50 10,393.92 [1]
7 Years Balance Balance Diff
8 5 56,740 57,433 693
9 10 129,156 130,734 1,577
10 15 221,580 224,286 2,706
11 20 339,538 343,685 4,147 [2]
 Select All, Copy, and Paste [3] the following at cell A1 of a blank Excel sheet.
Code: Select all
Starting balance 0 Annual contribution 10000 Annual growth rate 0.05 Monthly growth rate =(1+B3)^(1/12)1 Months to spread contribution 10 4 Value at end of year =FV($B4,B5,$B2/B5,0,0)*(1+$B4)^(12B5) =FV($B4,C5,$B2/C5,0,0)*(1+$B4)^(12C5) Years Balance Balance Diff 5 =FV($B$3,$A8,B$6,$B$1,0) =FV($B$3,$A8,C$6,$B$1,0) =C8B8 10 =FV($B$3,$A9,B$6,$B$1,0) =FV($B$3,$A9,C$6,$B$1,0) =C9B9 15 =FV($B$3,$A10,B$6,$B$1,0) =FV($B$3,$A10,C$6,$B$1,0) =C10B10 20 =FV($B$3,$A11,B$6,$B$1,0) =FV($B$3,$A11,C$6,$B$1,0) =C11B11
 Format for readability.
 Modify assumptions in cells B1:B3 and B5:C5. Note that the starting balance in B1 won't affect the "Diff" column.
 You can change the number of years in cells A8, A9, A10, or A11.
 Example calculation when $2,500 invested at end of Jan, Feb, March, & April:
10,393.92 = 2500 * (1.00407412 ^ 11 + 1.00407412 ^ 10 + 1.00407412 ^ 9 + 1.00407412 ^ 8)  Example calculation of value after 20 years using the Excel FV function:
343,685 = FV(5%, 20, 10393.92, 0, 0)  If you have trouble pasting, try "Paste Special" and "Text".