Imagine you make $40,000 annually working for a corporation that offered dollar-for-dollar matching on contributions up to the first 4.5% of salary. You are in the 28% tax bracket. To save $10,000 is going to be far easier than you think because you are dealing with a number of variables that are often not obvious. Let me illustrate.
Say you saved 20% of your income and had it put into your 401k, amounting to $8,000 each year. This one move will result in a savings of $2,240 on your tax bill, plus $1,800 in company matching will be deposited into your account ($40,000 x 4.5% = $1,800.) By investing the $8,000, you’re already $4,040 wealthier; that’s a 50%+ return on your money without taking any risk simply because you were empowered by having knowledge of the tax laws! At the end of the year, your 401k would have $9,800 added to it. If, instead, you chose not to invest in your 401k, you would take home an extra $5,120 in your paycheck after income taxes, payroll taxes, etc. But ask yourself which you would rather have: An extra $5,120 in your paycheck each year - $197 per bi-weekly paycheck - or $9,800 deposited into an account that can grow tax-deferred for decades?
The answer isn’t difficult. Were you to start this course of action at 25 years old and maintain it until you were 65, at a 10% compound annual rate of return, you would retire with over $4,337,000 in your 401k. That’s not a joke, nor is it a typo.
(Side note: There has been quite a bit of discussion about the 10% rate of return assumption. You can read an explanation of the mathematics here.)