Ramit SethiRamit Sethi: The No-BS Guide to Living a Rich Life

How to Double Your Investment Returns

3 Jul 2024 · 1 min

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0:45

Ramit Sethi explains how a 401(k) works through employer payroll contributions: you pick a percent of salary to contribute pre-tax and the employer may add a matching contribution. He illustrates the power of employer matching with a numerical example: starting at age 25 and earning 8% annually, including a company match (illustrated as a 5% match) yields about $1.6M+ at retirement versus about $800k without the match — framing the match as “free money” that can roughly double retirement savings.

Questions this video answers

8% per year

> $1.6 million

> $800,000

5% company match

Chapters

Here's how a 401k works through your employer. You determine a percentage of your salary that you'll set aside out of each paycheck. That percentage is taken out of your paycheck pre tax before you're taxed and sent to your 401k, meaning it happens automatically. You don't have to do it every month, it just happens. Now. If your company offers a match, that match will be added to your 401k from the employer. And the real beauty with a 401k comes when you invest enough to get the 400 full match from your employer. That is free money. If you start at age 25 and you earn 8% on your money, you'll have more than 1.6 million with the 401k match when you retire, or if there's no match, you'll have just over 800,000. A 5% company match can double your returns.