Why max out 401k?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't know why you are maxing out. I'd do up to the match and enjoy the rest. I can also live nicely on $4k a month. Not sure why you need twice that.

4k a month? Assuming your house is paid off, that's still cutting it pretty close IMO. 1k food, 1k in property taxes and insurance, 1k healthcare.

The tricky part is figuring that out in future dollars. I'm not OP, but we live on 6k including day care bill and mortgage. 4k would be more than enough without those. But we don't know how much food will cost in 25 years, for example.

You need to make some assumptions about inflation, just like you make assumptions about your rate of returns. This is also why its important to regularly revisit your retirement plans. Your assumptions may change.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I am in my mid-40 and currently save 10% of my salary towards 401k. My salary is 120k and have ~500k so far. I know these are small numbers compared to what most people post on this board but not bad realistically!

When I run a retirement calculator, it seems like I am on track for retirement and, including SS, I will have around 9k in monthly income. That sounds good to me. I don’t know how accurate the calculator I used is but, supposed it is, if I am on track, why would I want to max out my retirement savings? to have more money when I am old?

I have 2 children, but somehow the thought of a bigger inheritance to them doesn’t feel like a great motivation. I would rather enjoy my time with them now than passing them on money after I am dead! My husband also has his own fund with approximately the same balance and contribution.

Curious the numbers you used to get to 9k income. If you retire at 62, you'll get maybe 2500 in SS pretax. To get to 9k monthly, (and this is still pretax), you would need to have 2.6m in your 401k to get the remainder (6500) from four 401k. You aren't getting to 2.6 in 20 years if you are currently at 500k.

Why would the OP retire at 62 though? You can't even get Medicare at 62.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I am in my mid-40 and currently save 10% of my salary towards 401k. My salary is 120k and have ~500k so far. I know these are small numbers compared to what most people post on this board but not bad realistically!

When I run a retirement calculator, it seems like I am on track for retirement and, including SS, I will have around 9k in monthly income. That sounds good to me. I don’t know how accurate the calculator I used is but, supposed it is, if I am on track, why would I want to max out my retirement savings? to have more money when I am old?

I have 2 children, but somehow the thought of a bigger inheritance to them doesn’t feel like a great motivation. I would rather enjoy my time with them now than passing them on money after I am dead! My husband also has his own fund with approximately the same balance and contribution.

Curious the numbers you used to get to 9k income. If you retire at 62, you'll get maybe 2500 in SS pretax. To get to 9k monthly, (and this is still pretax), you would need to have 2.6m in your 401k to get the remainder (6500) from four 401k. You aren't getting to 2.6 in 20 years if you are currently at 500k.

Compound interest would get her almost exactly to 2.6M in 20 years.

[Anonymous]

Anonymous wrote:OP here. After writing my post I went and tried the Vanguard calculator and my estimate became less than half 😒, probably without SS. I was using the calculator that comes with the investment company from work, Voya, which didn’t have me input any number, so not sure what wild assumptions they made 😝
I get I may need to reconsider my financial picture after using other calculator and thinking about current and future priorities. The reason I think I am in good shape for now is that we are south European expat and will probably retire back there, where even a 2k monthly pension is considered not bad. We would have that already from SS.. Am I missing something? Things may get more complicated and expensive if children stay here and we have to travel back and forth..

This post makes more sense, OP. I am central European, and retiring in Europe is so tempting...

[Anonymous]

Anonymous wrote:

Anonymous wrote:I don't know why you are maxing out. I'd do up to the match and enjoy the rest. I can also live nicely on $4k a month. Not sure why you need twice that.

4k a month? Assuming your house is paid off, that's still cutting it pretty close IMO. 1k food, 1k in property taxes and insurance, 1k healthcare.

Assuming no inflation.

[Anonymous]

What you should do is map out scenarios, then back into what our savings would need to be based on them.

Worst case: major health catastrophe, need to stay in high COLA area with access to best doctors and family member caretakers. May need assisted living (price these out) -- wildly expensive

Best case: excellent health, can move back to Europe or wherever and then fly back/forth to see family that may stay in the US

Keep in mind that what sounds feasible at 40 is not feasible at 60 or 70. International moves are hard emotionally with grandchildren in the home country. Impossible with major health conditions.

[Anonymous]

Honestly, who knows. Every calculator says a different thing, people say you can’t count on social security despite paying into it, there’s inflation, the market is in the tank right now and I lose every dollar I contribute to my 401k anyway.

I’ve kind of given up caring or trying to figure it out. I contribute about $18k including employer match each year (mid-30s) and so does spouse which is about 10% each. Who knows where we will live or even what the world will look like in 30 years. It’s exhausting to think about all of the variables so I just don’t at this point.

[Anonymous]

Anonymous wrote:OP here. After writing my post I went and tried the Vanguard calculator and my estimate became less than half 😒, probably without SS. I was using the calculator that comes with the investment company from work, Voya, which didn’t have me input any number, so not sure what wild assumptions they made 😝
I get I may need to reconsider my financial picture after using other calculator and thinking about current and future priorities. The reason I think I am in good shape for now is that we are south European expat and will probably retire back there, where even a 2k monthly pension is considered not bad. We would have that already from SS.. Am I missing something? Things may get more complicated and expensive if children stay here and we have to travel back and forth..

If you are sure you will retire in your home country you are probably fine bc you likely don’t have to worry about healthcare costs. But, are you sure that will be your plan? If your kids settle here and they have kids you might end up feeling differently. My in laws are from India and returning was always in their minds until we had babies and they wanted to be close by.

[Anonymous]

Because you aren’t taxed on it!!

[Anonymous]

This idea that you should max your 401k is a little silly. You need to pick a target savings rate. Assuming you have a stable income and are going to make that amount, with standard raises, until you retire, than most financial advisors recommend saving 10-15% of your HHI. Lots of people get by with less.

For someone making 120k a year you almost always want to first contribute to your 401k so that you maximize any employer match. Then a Roth IRA and finally the 401k. The tax benefits of a 401k when you are maxing 120k a year are pretty marginal and some 401k plans have high fees.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I am in my mid-40 and currently save 10% of my salary towards 401k. My salary is 120k and have ~500k so far. I know these are small numbers compared to what most people post on this board but not bad realistically!

When I run a retirement calculator, it seems like I am on track for retirement and, including SS, I will have around 9k in monthly income. That sounds good to me. I don’t know how accurate the calculator I used is but, supposed it is, if I am on track, why would I want to max out my retirement savings? to have more money when I am old?

I have 2 children, but somehow the thought of a bigger inheritance to them doesn’t feel like a great motivation. I would rather enjoy my time with them now than passing them on money after I am dead! My husband also has his own fund with approximately the same balance and contribution.

Curious the numbers you used to get to 9k income. If you retire at 62, you'll get maybe 2500 in SS pretax. To get to 9k monthly, (and this is still pretax), you would need to have 2.6m in your 401k to get the remainder (6500) from four 401k. You aren't getting to 2.6 in 20 years if you are currently at 500k.

Yes PP is. 500k today would be upwards of 3.5 million in 20 years.

[Anonymous]

Anonymous wrote:Because you aren’t taxed on it!!

This. Here's how I look at it:

- If you need to money to live (not go on vacation, or buy things, but provide food, clothing, shelter, or transportation), then use income now and don't save.
- If you don't need it for those reasons, save in a tax advantaged vehicle to the maximum extent possible. In the case of a T401k, right off the bat you are deferring paying taxes at the highest rate you have now. There are very few circumstances where that doesn't make sense.
- Only in special circumstances (tax rates in retirement will be higher than they are now, concern about RMDs, etc.) should you divert that tax advantaged savings to taxable savings.

[Anonymous]

Anonymous wrote:Honestly, who knows. Every calculator says a different thing, people say you can’t count on social security despite paying into it, there’s inflation, the market is in the tank right now and I lose every dollar I contribute to my 401k anyway.

I’ve kind of given up caring or trying to figure it out. I contribute about $18k including employer match each year (mid-30s) and so does spouse which is about 10% each. Who knows where we will live or even what the world will look like in 30 years. It’s exhausting to think about all of the variables so I just don’t at this point.

On SS --- rule that I think works --- today in your 50s -- no changes to SS. In 40s maybe some changes and mostly be there. In 30s -- all bets are off. They will never alter benefits if people in their 50s. Voting block is always too big and those people vote.

[Anonymous]

Anonymous wrote:I don't know why you are maxing out. I'd do up to the match and enjoy the rest. I can also live nicely on $4k a month. Not sure why you need twice that.

So this is the right question. What will you spend in retirement? You need to really stress test that. Include vacations, healthcare, gifts to kids, new cars every so often, home repairs and think of end of life scenarios. If 9 does it for you build towards that. PP said 4 -- build toward that. My number is higher. But whatever it is -- build towards that. I wouild max out through your 40s and then re-think at 50. Just me but that savings and compounding will make up for a lot of errors in your planning.

[Anonymous]

Anonymous wrote:OP here. After writing my post I went and tried the Vanguard calculator and my estimate became less than half 😒, probably without SS. I was using the calculator that comes with the investment company from work, Voya, which didn’t have me input any number, so not sure what wild assumptions they made 😝
I get I may need to reconsider my financial picture after using other calculator and thinking about current and future priorities. The reason I think I am in good shape for now is that we are south European expat and will probably retire back there, where even a 2k monthly pension is considered not bad. We would have that already from SS.. Am I missing something? Things may get more complicated and expensive if children stay here and we have to travel back and forth..

Because most of us not from Southern Europe and, therefore, retire in US where families are. Come on OP!