Why max out 401k?

[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..

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

Agree with the idea but Putin can't take over lightly armed Ukraine. --- Europe too much.

[Anonymous]

Anonymous wrote: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.

I am the business owner who asked above how much to invest in solo 401k. Just ran the numbers assuming no inflation and 3.4% annual market growth. It appears that in high inflation it makes no sense to contribute into 401 but rather keep reinvesting in my own business that has 11% annualized rate of return which beats inflation a little bit.

Any CPA/CFAs here to take a look? Am I right?

Tax deductions 14000 30000 30000 30000 30000 30000 30000 30000 30000 254000
Federal income tax@21% 2940 6300 6300 6300 6300 6300 6300 6300 6300 53340
DC income tax@10% 1400 3000 3000 3000 3000 3000 3000 3000 3000 25400
Investment income@3.4% 476 1496 2516. 3536 4556 5576 6596 7616 8636 41004
Total extra income 4816 10796 11816 12836 13856 14876 15896 16916 17936 119744
Income tax @exit@25% 63500
Net extra income 56244
Aggegate Return on investment 22%
Annual return (no inflation) 3%

[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.

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

Exactly. don't know why people were questioning this.

[Anonymous]

Anonymous wrote:

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.

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

Exactly. don't know why people were questioning this.

Math is hard. They probably aren't factoring in future contributions, matches and raises.

[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?

If you don't need the extra income, you should max out both the employee and employer contributions to the plan. This year it's around $55k.

[Anonymous]

Nothing wrong with max tax advantage(retirement) accounts. But once you get past saving gross 25% of income might makes sense start putting money into a brokerage instead. This will give flexibility concerning taxes and forced withdrawals from retirement accounts at age 72.

[Anonymous]

There is a cost to over-saving that most don’t want to acknowledge. You lose experiences that you will never get back. Money has more value when you are younger. Even at middle age, if you have kids you will lose experiences you can never do again by over-saving. Yes you can put them off, but going to Spain in your 20s is unique from in your 40s which is unique from in your 60s.

A gold plated nursing home sure is nice but at what cost. If you want an extra 1M to ensure the best nursing home, what if you took half of that and went to an average nursing. What experiences does that buy over the years….hint….it’s significant.

Now some have a goal to leave a large inheritance, which is fine if that is your top goal go for it. This advise would not be for you.

[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.

Curious how much is your HHI if it’s not “one or the other”?

[Anonymous]

Anonymous wrote:There is a cost to over-saving that most don’t want to acknowledge. You lose experiences that you will never get back. Money has more value when you are younger. Even at middle age, if you have kids you will lose experiences you can never do again by over-saving. Yes you can put them off, but going to Spain in your 20s is unique from in your 40s which is unique from in your 60s.

A gold plated nursing home sure is nice but at what cost. If you want an extra 1M to ensure the best nursing home, what if you took half of that and went to an average nursing. What experiences does that buy over the years….hint….it’s significant.

Now some have a goal to leave a large inheritance, which is fine if that is your top goal go for it. This advise would not be for you.

While I agree, but the fact remains that most people lack the discipline to use that extra money NOT maxing out the 401k in the ways you describe. So you decided to not max and instead just contribute 50%. OK, so that's what 9K extra that you you now are getting back. After taxes, that's maybe 6K left? Spread that out of the year and most people are just going to end up wasting that extra couple hundred dollars per check on eating out more or other crap.

One of the powers of 401k contribution is that it takes it out before you even have a chance to see it.

[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..

Your question is about as stupid as your first calculator. Most of us are not from Greece. That's why we save.

[Anonymous]

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.

hahahaha!!! Sign me up for that calculator

[Anonymous]

Anonymous wrote: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.

Same here, especially no. 2. You never know if you’ll always be able or want to work, so I’ve maxed out every year since I started working. Occasionally I think about the extra great vacation I could take if I cut back contributions, but I always go back to thinking I could leave the workforce for any number of reasons and need to save while I can.

[Anonymous]

The reason I max out my 401ks is because if the market goes well and I play my cards right, I'd like to retire early.

[Anonymous]

Anonymous wrote:There is a cost to over-saving that most don’t want to acknowledge. You lose experiences that you will never get back. Money has more value when you are younger. Even at middle age, if you have kids you will lose experiences you can never do again by over-saving. Yes you can put them off, but going to Spain in your 20s is unique from in your 40s which is unique from in your 60s.

A gold plated nursing home sure is nice but at what cost. If you want an extra 1M to ensure the best nursing home, what if you took half of that and went to an average nursing. What experiences does that buy over the years….hint….it’s significant.

Now some have a goal to leave a large inheritance, which is fine if that is your top goal go for it. This advise would not be for you.

I am non-white immigrant. Right now, the only way I am able to have a good life is because of my education. I want to give a leg up to my children by paying for their college, their first car, their wedding, the down-payment to their home etc. There is great satisfaction in being secure in your old age, and great satisfaction in seeing your children and family thrive. Most people will priortize that - college, retirement, security and then if they have money left they will spend on other things - leisure travel, sports car etc. So the thing is that we live in today. No one is happy being broke in their old age but being happy that they went to Spain thrice.

[Anonymous]

The idea of NEEDING to work when you are in your late 50s or 60s and therefore having to put up with less than ideal work environments, bosses or clients sounds incredibly unappealing.

Age discrimination in most industries is real. Your future self will thank you for the option to retire.