Anyone NOT maxing out your 401(k) even though you're making decent money?

[Anonymous]

Anonymous wrote:

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Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

I am curious where you put your money that you consider safer than a 401k, given your lack of faith in the future of the economy. Gold bullion? What investments do you think are immune to the collapse of the US economy?

None are. That's the point. Stay out of debt, have an emergency fund, live within means, put some away for a rainy day. If there's something you want to buy or do that will enrich your life, so it now. Spend the money. There's no guarantee that you and/or your money will be there later.

You're disillusioned enough to believe that the market (stocks or bonds) won't outperform your checking and savings accounts with their 0.1% interest rates? Or you're disillusioned enough to believe that the theory of compounding won't apply anymore?

I'm cringing just thinking about this -- and I'm an (older) millennial too.

The more I see this, the more I think it's not actually a thought-out financial plan, but rather a post hac rationalization for excessive consumer spending. "I want that new Tesla, but the only way I can afford it, and my new condo, is to severely limit my savings. Well, it's not like the stock market is going to do anything anyway . . . "

THIS. I'm a millennial who is very much into investing (older one - in my 30s), and I feel like I hear this year after year. People always say -- oh I could invest it, but it's not like the market is doing well anyway, so let me just get the Benz or Tesla or vacation or whatever. And sometimes they are right that the market isn't doing well right that moment -- it's had a week or 2 of a slide or lateral movement. Yet they fail to look at it long term. I've heard coworkers say it this year -- that it's been a bad year and it isn't worth investing beyond the bare minimum; and yet the S&P is up 5%+ YTD despite the volatility, so there's a 5% return they missed out on.

Yeah, it would be terrible to invest in the market when it's down. They should wait until it's at the peak, and THEN invest.

*headdesk*

Are you just looking for someone to lecture? I'm the millennial that invests plenty -- maxing out all retirement options + a brokerage account and plenty of buying on all kinds of market shocks. I DO understand that you buy low and sell high. All I'm saying is that I have run across lots of people with confirmation bias -- i.e. I'll buy the car bc what good is investing, look how bad the market is -- while looking at headlines for the last week where the market went down 0.5% -- while ignoring that overall it's up 5% YTD.

So save your lecture for someone who needs it.

He wasn't lecturing you, was agreeing with you!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:*raises hand* we're contributing but not maxing out. We have really sound personal finance habits but very little faith in the future of the economy. Signed, disallusioned millennial.

I am curious where you put your money that you consider safer than a 401k, given your lack of faith in the future of the economy. Gold bullion? What investments do you think are immune to the collapse of the US economy?

None are. That's the point. Stay out of debt, have an emergency fund, live within means, put some away for a rainy day. If there's something you want to buy or do that will enrich your life, so it now. Spend the money. There's no guarantee that you and/or your money will be there later.

You're disillusioned enough to believe that the market (stocks or bonds) won't outperform your checking and savings accounts with their 0.1% interest rates? Or you're disillusioned enough to believe that the theory of compounding won't apply anymore?

I'm cringing just thinking about this -- and I'm an (older) millennial too.

The more I see this, the more I think it's not actually a thought-out financial plan, but rather a post hac rationalization for excessive consumer spending. "I want that new Tesla, but the only way I can afford it, and my new condo, is to severely limit my savings. Well, it's not like the stock market is going to do anything anyway . . . "

THIS. I'm a millennial who is very much into investing (older one - in my 30s), and I feel like I hear this year after year. People always say -- oh I could invest it, but it's not like the market is doing well anyway, so let me just get the Benz or Tesla or vacation or whatever. And sometimes they are right that the market isn't doing well right that moment -- it's had a week or 2 of a slide or lateral movement. Yet they fail to look at it long term. I've heard coworkers say it this year -- that it's been a bad year and it isn't worth investing beyond the bare minimum; and yet the S&P is up 5%+ YTD despite the volatility, so there's a 5% return they missed out on.

Yeah, it would be terrible to invest in the market when it's down. They should wait until it's at the peak, and THEN invest.

*headdesk*

Are you just looking for someone to lecture? I'm the millennial that invests plenty -- maxing out all retirement options + a brokerage account and plenty of buying on all kinds of market shocks. I DO understand that you buy low and sell high. All I'm saying is that I have run across lots of people with confirmation bias -- i.e. I'll buy the car bc what good is investing, look how bad the market is -- while looking at headlines for the last week where the market went down 0.5% -- while ignoring that overall it's up 5% YTD.

So save your lecture for someone who needs it.

Lighten up, Francis. I wasn't talking about you, but the people you referenced in your post who don't invest because the market is down slightly. (Seriously, isn't that obvious? SMH)

[Anonymous]

In any event I think PPs are right -- I work with a lot of people who are just 1-2 yrs younger than me (31-33 yrs old) who really don't want to invest much/at all and they CONSTANTLY justify it as, the market is not doing well anyway. And there's a lot of -- live in the moment, we deserve this vacation or that car. I don't get it.

[Anonymous]

We're a young 30s couple that is saving for retirement but not maxing out on a $250k HHI. We're saving the difference in taxable accounts instead. We're hoping to have our second child next year and want to make sure we have accessible money in case things happen (illness, job loss, accidentally conceiving twins, etc). I think tax deferred accounts are great for locking the money up and making sure you save it for retirement, but that means it's hard to get your hands on if you really need it. At this point in our lives, I'm ok with only putting $20k/year in tax deferred accounts between the two of us.

[Anonymous]

For the Millennials that are reluctant to put money in their 401(k)s, see this article about how you can have $1 million in your 401(k) by age 65 by starting early (ideally by 25) and putting in even modest amounts.

http://www.cnbc.com/2016/08/03/millennials-you-can-save-1-million-dollars-for-retirement.html

[Anonymous]

Anonymous wrote:We're a young 30s couple that is saving for retirement but not maxing out on a $250k HHI. We're saving the difference in taxable accounts instead. We're hoping to have our second child next year and want to make sure we have accessible money in case things happen (illness, job loss, accidentally conceiving twins, etc). I think tax deferred accounts are great for locking the money up and making sure you save it for retirement, but that means it's hard to get your hands on if you really need it. At this point in our lives, I'm ok with only putting $20k/year in tax deferred accounts between the two of us.

The most compelling argument I heard went as follows. Take a look at those websites that show how compound interest shows your money's growth over time. Like the kind that says what growth you get in year 1,2,..30... 40. etc... And of course the largest one is the last one. That last one is the one you're giving up by not contributing now. There's always the ability to stop, or borrow from your accounts.

[Anonymous]

Anonymous wrote:We're a young 30s couple that is saving for retirement but not maxing out on a $250k HHI. We're saving the difference in taxable accounts instead. We're hoping to have our second child next year and want to make sure we have accessible money in case things happen (illness, job loss, accidentally conceiving twins, etc). I think tax deferred accounts are great for locking the money up and making sure you save it for retirement, but that means it's hard to get your hands on if you really need it. At this point in our lives, I'm ok with only putting $20k/year in tax deferred accounts between the two of us.

It takes less than a minute on the web to request a $50K loan from a retirement account. You'll get the money a couple of days later. If you and your spouse both have accounts, you can request two loans. You are foregoing the tax benefits from using retirement accounts because you fear you may need more than $100K liquidity in addition to whatever you can get from a HELOC, credit cards, etc. This is unwise.

[Anonymous]

We are a 2-income couple, age 50, with 2 teens, making ~$225k/year. I max my 401k (with employer match), but DH puts very little in. We both have generous and rock solid* pension plans--DH's will replace about half of his salary--and we are on track to have over $1m in savings by retirement age. That, plus social security (which, yes, I do believe will still be in around, in some form) should be enough to maintain--or even improve on--our current standard of living, given that we currently devote about 40% of take-home to mortgage and college tuition payments, both of which will be paid off by the time we retire.

*By rock-solid, I mean: if our pensions fail, we are all in deep, deep trouble.

[Anonymous]

Anonymous wrote:We are a 2-income couple, age 50, with 2 teens, making ~$225k/year. I max my 401k (with employer match), but DH puts very little in. We both have generous and rock solid* pension plans--DH's will replace about half of his salary--and we are on track to have over $1m in savings by retirement age. That, plus social security (which, yes, I do believe will still be in around, in some form) should be enough to maintain--or even improve on--our current standard of living, given that we currently devote about 40% of take-home to mortgage and college tuition payments, both of which will be paid off by the time we retire.

*By rock-solid, I mean: if our pensions fail, we are all in deep, deep trouble.

I can see what you mean. But in a sense, are you looking at the 401(k) as just a way to fund retirement? I'm hoping to use it as a way to generate some wealth that I won't necessarily spend in retirement (because we also have pensions coming). Anyone else in that same boat?

[Anonymous]

Anonymous wrote:

Anonymous wrote:We are a 2-income couple, age 50, with 2 teens, making ~$225k/year. I max my 401k (with employer match), but DH puts very little in. We both have generous and rock solid* pension plans--DH's will replace about half of his salary--and we are on track to have over $1m in savings by retirement age. That, plus social security (which, yes, I do believe will still be in around, in some form) should be enough to maintain--or even improve on--our current standard of living, given that we currently devote about 40% of take-home to mortgage and college tuition payments, both of which will be paid off by the time we retire.

*By rock-solid, I mean: if our pensions fail, we are all in deep, deep trouble.

I can see what you mean. But in a sense, are you looking at the 401(k) as just a way to fund retirement? I'm hoping to use it as a way to generate some wealth that I won't necessarily spend in retirement (because we also have pensions coming). Anyone else in that same boat?

PP here. I definitely think of it as funds for retirement. DH and I have relatives who are/were 90+, so I think we are going to want to be cautious about preserving a pretty large nest egg. I worry too about one or both of us needing long-term care--that eats up savings very, very quickly.

[Anonymous]

"if you believe that you will be in the same tax bracket at retirement as you are now, there is no tax advantage from investing with pre-tax money instead of post-tax money. If you believe (say) that you will pay 28% of your marginal income dollar in taxes when retired, versus 35% now, then the tax advantage from using pre-tax money to invest is 7%. "

NP. You're a little bit off on this one. Even if you expect to be in the exact same [marginal] "bracket" in your retirement, you still need to compare the fact that your tax-deferred 401(k) savings now are likely avoiding the higher marginal rate now, but when you take a distribution in retirement, it's the lower EFFECTIVE rate that matters. So it might be 35% now and 35% then for your bracket, but it's whatever amount off the TOP now (taxed higher), and later it's spread across the whole ladder, including across the much lower rates. Make sense, or no?

[Anonymous]

Anonymous wrote:"if you believe that you will be in the same tax bracket at retirement as you are now, there is no tax advantage from investing with pre-tax money instead of post-tax money. If you believe (say) that you will pay 28% of your marginal income dollar in taxes when retired, versus 35% now, then the tax advantage from using pre-tax money to invest is 7%. "

NP. You're a little bit off on this one. Even if you expect to be in the exact same [marginal] "bracket" in your retirement, you still need to compare the fact that your tax-deferred 401(k) savings now are likely avoiding the higher marginal rate now, but when you take a distribution in retirement, it's the lower EFFECTIVE rate that matters. So it might be 35% now and 35% then for your bracket, but it's whatever amount off the TOP now (taxed higher), and later it's spread across the whole ladder, including across the much lower rates. Make sense, or no?

PP here. This is a good point.

[Anonymous]

i am so tired of the age-smearing on dcum. get a clue. all personality types are represented in all generations -- to the extent generations are even a real thing.

also, while i am a big saver by nature, it is not invalid to have a consumption oriented lifestyle. It just means you're going to work later in life than if you abstained. each person should decide how they want their life balanced between work and play. avoiding adventure and enjoyment in youth so you can have hoarded money when you are old is the default, but not the only way to do things.

[Anonymous]

Anonymous wrote:i am so tired of the age-smearing on dcum. get a clue. all personality types are represented in all generations -- to the extent generations are even a real thing.

also, while i am a big saver by nature, it is not invalid to have a consumption oriented lifestyle. It just means you're going to work later in life than if you abstained. each person should decide how they want their life balanced between work and play. avoiding adventure and enjoyment in youth so you can have hoarded money when you are old is the default, but not the only way to do things.

This could not be further from the truth. The reality is that most people, regardless of age, are not saving little for retirement, many of them because they make too little to save much.

[Anonymous]

Anonymous wrote:

Anonymous wrote:i am so tired of the age-smearing on dcum. get a clue. all personality types are represented in all generations -- to the extent generations are even a real thing.

also, while i am a big saver by nature, it is not invalid to have a consumption oriented lifestyle. It just means you're going to work later in life than if you abstained. each person should decide how they want their life balanced between work and play. avoiding adventure and enjoyment in youth so you can have hoarded money when you are old is the default, but not the only way to do things.

This could not be further from the truth. The reality is that most people, regardless of age, are not saving little for retirement, many of them because they make too little to save much.

dammit, that should read: "...most people, regardless of age, are saving little for retirement..."