From time to time, to gauge opportunities for the workforce in the marketplace, I look at retirement investing benefits and other benefits. This evening, I was thinking about Wal-Mart Stores, Inc. Here is how I approach these things at my desk.
Wal-Mart matches employee stock purchases by 15% on the first $1,800 worth of shares bought each year. If you work at the company and write a check to buy $1,800 worth of the stock, the company is going to give you another $270 to buy shares completely free. That results in an automatic 15% return before you’ve collected your first dividend. On top of that, the company matches 100% on the first 6% of salary contributed to a 401(k) plan.
To put it into perspective: Imagine that you have a perfectly average American couple, John and Jane, who have 2.5 kids, drive a minivan, and live in the Midwest. They are both assistant managers at local Walmart stores, earning the average salary of $58,000 for their job, or $116,000 combined.
Every year, they both buy $1,800 worth of Wal-Mart Stores, Inc. common stock, having the money taken directly out of their paycheck. With the 15% match on the $3,600 they are saving between the two of them, they are able to buy $4,140 worth of shares in Walmart every year. They tell the company to reinvest the dividends on their stock.
In addition, both max out their 401(k) up to the point of the match (6% of salary). At $58,000 each, both John and Jane kick in $3,480 per year and receive a matching $3,480 from the company. That means that between the two of them, they are saving $6,960 per year but receiving a free $6,960 in matching funds, which is a 100% return on their money instantly, for a total of $13,920 annually. In the 25% bracket, they are going to receive $1,740 in tax credits for their part of the retirement contribution, putting extra cash in their pocket each year.
Between those two items alone, the couple is giving up $8,820 in cash out of pocket each year ($10,560 in out of pocket contributions less the $1,740 tax refund they will get back form the IRS as a result of their retirement savings) but putting $18,060 in money away for their future. The value of their investments would have to fall by more than 51.1% before they lost a single penny of their own net contribution money!
If that is all they did, never saving any other money elsewhere, spending their paychecks on nicer homes, newer cars, better furniture, longer and more upscale vacations, sending their kids to school, etc., they would not only get to enjoy their lives, but they’d retire with nearly $4.9 million in their investment account at average long-term rates of return. If inflation runs the same rate it did during the past century, that would be around $1.7 million in today’s dollars, which would generate $5,700 per month pre-tax without every touching the principal. Clearly, this is a simplification because you wouldn’t want to hold all of your net worth in Walmart stock if you also relied on the company as an employer, but the basic math is sound.
It’s not hard to do well in the United States. You just have to know a few things about economics, compounding, and tax rules.