Why max out 401k?

[Anonymous]

I have contributed since I started working at 23. I have been maxing out since I paid off my student loans at age 30. I even switched to a Roth 401k that my company offers - so it’s post tax money.

Why max out?
I married a person who was in grad school until he was 30 and then did a series of fellowships until our late 30s. Now he’s a fed who has been able to max out his TSP since day 1 - but that Day 1 was 15 years later than I started saving. My savings will support us if needed in retirement.

I plan to pay for college for my kids. We are saving for 1 kid to be full pay state school and 1 full pay private. Depending on what they choose, we may need to pay some of it with current cash flow. I’ll be 54 when my first kid starts college and I should be in a position to back off of aggressive retirement saving at that point if I need to.

[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.

But you should factor in that your health care should be more expensive then (as it should be- you're not as healthy at 65+).

I don't have a mortgage, but property taxes are 6k a year and homeowners insurance is 2k. And as your home ages, you will need to maintain it too, and you might not physically be able to do that work anymore.

[Anonymous]

It saves money for your future and lowers your taxes. Wage earners get very few mechanisms to lower their taxes and both parties always seek to take them away so you should take full advantage when you are able.

[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..

Also, Putin could take over Europe? Is it too much of a stretch to max the 401K?

[Anonymous]

It has not been easy to save for retirement and college, with a SAHM and with maintaining a life style which includes travel, tutors, outsourcing etc.

My kids got generous merit scholarship in state schools and so they now have some seed money from what we did not spend on college.

We are still cautious about money, even though we don't stop living in today. You can do both, make good financial decisions as well as have fun in the present. It is not one or the other.

[Anonymous]

Anonymous wrote:It has not been easy to save for retirement and college, with a SAHM and with maintaining a life style which includes travel, tutors, outsourcing etc.

My kids got generous merit scholarship in state schools and so they now have some seed money from what we did not spend on college.

We are still cautious about money, even though we don't stop living in today. You can do both, make good financial decisions as well as have fun in the present. It is not one or the other.

[headdesk]

I just can't.

[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.

OP can get to $2.4M, assuming a 3% yearly raise and 6% average returns for 20 years. The issue is that gets you $8K in future dollars, which is more like $5K in today’s dollars.

Also what formula are you using to get only $6500/month from $2.6M?

[Anonymous]

Anonymous wrote:

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.

OP can get to $2.4M, assuming a 3% yearly raise and 6% average returns for 20 years. The issue is that gets you $8K in future dollars, which is more like $5K in today’s dollars.

Also what formula are you using to get only $6500/month from $2.6M?

Actually I am wrong. OP can probably get to $2.6M with an employer match.

[Anonymous]

I max out now for two reasons.

1. Time in the market is the ultimate advantage for investing. A front-loaded investment strategy will (nearly) always result in a far higher end-balance as compared to a long-term DCA strategy even if the invested funds are equal in amount.
2. I know I have investable funds now; I don't know if I will tomorrow.

[Anonymous]

A question from another poster here: I have a business and solo 401k. My gross annual income before write offs is 350K, net after tax and depreciation write offs is around 180K. Someone said that tax advisors recommend 10-15% of your income deferred for 401k. Shall I save 10% from 350K or 10% from 180K/net income?

[Anonymous]

Anonymous wrote:A question from another poster here: I have a business and solo 401k. My gross annual income before write offs is 350K, net after tax and depreciation write offs is around 180K. Someone said that tax advisors recommend 10-15% of your income deferred for 401k. Shall I save 10% from 350K or 10% from 180K/net income?

It all depends on what other investment funds you will have available to you.

But personally, I would do $35K because you can.

[Anonymous]

Anonymous wrote:

Anonymous wrote:A question from another poster here: I have a business and solo 401k. My gross annual income before write offs is 350K, net after tax and depreciation write offs is around 180K. Someone said that tax advisors recommend 10-15% of your income deferred for 401k. Shall I save 10% from 350K or 10% from 180K/net income?

It all depends on what other investment funds you will have available to you.

But personally, I would do $35K because you can.

Can you recommend good investment funds for someone with 200-300k in free cash? I thought these work only with large fish not folks like me

[Anonymous]

I max mine because it’s one of the limited ways to reduce my currently taxable income. I assume my tax rate at retirement will be lower.

[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..

OP - one calculator is using today's dollars, another is using future dollars.

[Anonymous]

Anonymous wrote:

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..

OP - one calculator is using today's dollars, another is using future dollars.

Also check to see if the calculation includes SS or not.