February 15, 2017

Comparing 401k Contributions When Switching Jobs

I recently moved companies for a couple reasons, the main one being it puts me in a better spot financially. Most people look for new jobs to improve their money situation, and I was no different. A big improvement at the new company is the 401k match. I’d like to break the exact numbers down, and see just how much it will help me over the long haul.

  Old New
Salary Low 34% more
401k Match 6% 7%
Tuition $1,533 $2,433

Difference in Employer 401k Contributions with No Growth

So my new job pays 34% more, then 401k match is better. They pay more towards my graduate school tuition, which is already quite cheap. Great, it’s a better company that seems to value the employees more. It’s a job with more importance and learning potential, which is what I want. But how do just the numbers stack up over 5, 10, 15 years? First off, I simplified the initial calculations quite a bit. This accounts for no growth in the 401k, and my salary staying the same for 15 years (very unlikely). My new company would have the huge advantage if I factored in raises, since a 3% on my new salary is the same dollar amount as a 4% raise at my previous salary. This also assumes maxing out the employee contribution towards my 401k at $18,000 per year.

  Old Co. New Co.
Year 1 21,579 23,600
Year 2 43,158 47,200
Year 3 64,737 70,800
Year 4 86,317 94,400
Year 5 107,896 118,000
Year 6 129,475 141,600
Year 7 151,055 165,200
Year 10 215,793 236,000
Year 15 323,689 354,000

You can see above that my new 401k contributions are worth a few thousand per year, not even accounting for growth! Some other points of consideration: at my former job, I had to contribute 30% of my salary towards my 401k to max it out, which I was unable to do. Now I only have to do 22.5% contribution to max out my 401k contributions at $18,000 (as of 2017), which is much more manageable. And less of my money will do more of the background lifting, which is always nice!


Difference in Employer 401k Contributions with Growth!

Let’s see what the 401k would look like with some closer to real life assumptions. This table assumes a 3% raise per year at each company, still contributing the max of $18,000 per year, and 8% growth per year in the 401k’s value. This is the more realistic, but less simplistic scenario. You can see that the new company steadily outpaces the old with just higher employer contributions on a higher salary. This move will be worth about $30,000 just in employer contributions in 15 years of work!

  Old Co. New Co.
Year 1 21,579 23,600
Year 2 44,992 49,256
Year 3 70,388 77,137
Year 4 97,931 107,427
Year 5 127,794 140,324
Year 6 160,167 176,042
Year 7 195,254 214,812
Year 10 269,545 293,304
Year 15 386,522 415,239


Costs of Leaving

I incurred a few reasons to consider staying. For leaving my old job, I had to pay back $511 in tuition towards my grad school. Unfortunately, I was only 25% vested in the employer contributions for my 401k. However, I had a “leaving bonus”, which came when the company switched from an accrual vacation policy to an unlimited vacation policy. This amounted to the number of hours you had left in your vacation bank times your hourly rate on that date. Mine settled at about $700, so the net after paying back the tuition was a $200 leaving bonus. WooHoo! Taking this new job is a huge step in the right direction for me towards an earlier retirement!