Pay question - higher pay vs retirement matching...

NedRN · Jul 10, 2015

I'm not getting the question. Total pay, pick the one that pays the most. Pretty simple equation.

Make sure the 401 vests immediately, otherwise it is worthless except for marketing.

llg, PhD, RN · Jul 10, 2015

If the 401K vests quickly and is of decent quality, then I would take that one. A higher cash salary would be taxed ... So how much would you really get? And what you really get to "take home" of that extra cash would be tempting to spend on frivolous things. The 401K match would probably not be taxed, so you would get the whole thing ... not taxed ... and invested for you to use later in retirement. That assumes that it is a decent 401K and that it would be yours to keep when you leave the company.

Without knowing that the 401K is decent ... and not knowing how much extra cash we are talking about ..... I say "take the 401K unless the case is extreme or there is something wrong with the 401K."

NedRN · Jul 10, 2015

A 401 is a deferred tax account. You will still pay income taxes when you withdraw it. No savings unless you withdraw it with a presumably lower tax rate after retirement.

This slight advatage only will work if the total compensation is at least equal. If you can find that in the original post, I will bow to your superior reading and comprehension skills.

llg, PhD, RN · Jul 10, 2015

A 401 is a deferred tax account. You will still pay income taxes when you withdraw it. No savings unless you withdraw it with a presumably lower tax rate after retirement.
This slight advatage only will work if the total compensation is at least equal. If you can find that in the original post, I will bow to your superior reading and comprehension skills.

I assume you were talking to me.

1. Most nurses WILL be in a lower tax bracket when they retire, so there will be a tax advantage. Plus, they will have the benefits of tax-deferred growth.

2. Most people, when given extra cash, will not save all of it. While the OP seems like a very responsible person ... the odds are against her putting an equivalent amount of that extra cash into a retirement investment. Odds are she will fritter some of it away. (No disrespect intended here, OP, just going with the odds.)

Put those 2 facts together ... and note that I qualified my recommendation by stating that I was assuming the 401K is a good one and the cash amount is not exceptional ... and I stand by my recommendation. The OP will probably end up with more money in the long run with a healthy 401K than with some extra cash in hand now. My recommend would be the opposite if the assumptions (that I stated) are not true. But the OP didn't provide those details.

If the 401K is a bad one ... or the cash amount is really significant ... or if the OP is an exceptional money manager/investor (which I doubt since he/she is asking the question) ... then my recommendation would change.

NedRN · Jul 10, 2015

So let's talk about 401s then! I originally just made a very short statement in keeping with the rather ambiguous original post. She may well have wanted to hear more about 401s.

First, I will agree heartily that most Americans are bad savers with no discipline and many if not most end up reliant on Social Security. The vast majority of Americans that have significant assets are home owners, which for most is a disciplined savings plan by way of 20 years of mortgage payments. Not a very good savings plan as most of the money put into a mortgage is interest on the debt. Fortunately, at least most home appreciate over the long term, somewhat countering the interest loss.

Most Americans with significant retirement accounts are also homeowners. And most have had stable jobs with large employers that make it possible to build large accounts over decades of contributions to well run plans. That is not the case for travelers. Many only travel for a few assignments, and a large number of long term travelers hop agencies frequently. That is not a recipe for disciplined savings, and the results for a three month assignment such as the one discussed is trivial, even if it is a good plan. Which is unlikely.

Most agencies were sold a 401 plan by a sales person who walked through their door and wowed them with a presentation. "No cost to you, we will take care of all the paperwork, and benefits galore for the traveler." Trouble is, sales people have to be paid. Every agency plan I've looked at had significant costs, most very well hidden, to pay commissions to the sales person. Nothing as obvious a sales "load". All of the plan prospectives (how many employees look at them?) showed that they were wrapped in a completely gratuitous annuity shell. An annuity is a type of tax deferred account, completely useless in the context of an already tax deferred 401. Annuities carry an annual fee of about 1%. That is huge already in terms of a long term investment account.

Next is that the funds you purchase in agency 401s do not have ordinary stock tickers. They are usually based on a name brand fund, but have a different ticker and cannot be purchased on the open market. That is so fees can be charged, again to the benefit of the sales person. They are well hidden, and even experts have a hard time getting to the bottom of them. Bottom line is you are likely paying over 2% a year in hidden fees, on top of fund management fees. Far more than going directly to an index fund from say Vanguard.

All that said, I'm a big fan of retirement accounts. About half of my "liquid" assets are in a combination of regular IRAs and 401s, and Roth IRAs and 401s. While there is no guarantee that tax rates will actually be lower when I retire (one of the risks of tax deferment that is not discussed much), it is likely. Plus a good percentage of my 401s are in Roth accounts (converted from regular 401s in low earnings years with minimal tax) in which all earnings are not subject to tax at all when withdrawn.

Mostly I'm very disciplined when it comes to savings and am thrifty with a lot of disposable income. I also took advantage of negotiated benefits of several agencies that I worked with to contribute the annual maximum during a single three month assignment (close to 20K). Knowing what I knew about the plan costs, I took steps to preserve the equity in my contributions. I did this by directing my contributions into a money market fund that did not have the costs associated with the mutual funds. As soon as I finished an assignment, I rolled over the agency 401 into my own self directed IRA.

That is what I recommend to any traveler disciplined enough to utilize 401s and actually seek out agencies in part based on their plans. Place your contributions in a money market fund and as quickly as you can, roll it over into a self directed IRA from Vanguard or Fidelity. If the plan has onerous vesting requirements, negotiate instead for an increase in your hourly instead. I typically could care less about agency matching as it is too small to matter usually. Instead, I ask for voluntary deductions from my pay of large amounts based on annual contribution limits. That is the way to saving a lot of money. In my opinion and my own life.

uncwRN09 · Jul 11, 2015

Sorry, I know that question was kind of vague, but it's hard to form questions when there's so many other factors you can take into account. I've rerun the numbers after talking with my current company and getting them to up the ante and now they're the ones in the lead - minus how much I pay for insurance - ugh.

I try to be decent when it comes to saving money - putting all that I can match into my 401k and maxing out my Roth IRA. I know that I will for sure need it in the future. How do I get to be so knowledgable all of this stuff like ya'll? I need a travel nursing for dummies book.