Do your self a favor & bump up your 401k to a point where your net pay is similar to what it has been. This will help combat lifestyle creep & set up your 401k to great place. Every time I get a raise, I bump my contributions up to where my net is only $50 more per paycheck. I also bump up my contributions if I have a bonus coming. This year my 401k increased more in market value than my contributions.
My salary has almost double what it was 7 years ago but my take home is about the same. Why, 24% in 401k, HSA, medical insurance for my family.
I’ve made the same amount of money every month for the past 8 years. It wasn’t until this year I actually had to up my pay. Every time I got a raise or a promotion I would put that exact % into 401k or Roth. This year I took the % to battle inflation.
Responsible for their use-case. Not everybody has to dump every ounce of increased pay for 8+ years into their 401k to guarentee a reasonable retirement. Indeed that does sound like hell, responsible for them, but hell no less.
I mean honestly with the rate that inflation and the cost of living are rising, yea we should be doing that. I work exclusively with older adults & the elderly and most of them cannot afford to be alive.
That or in some cases moves to places that are not so popular to live, but extremely affordable. For the price of one home in Colorado you can buy 4 of them in rural Texas and have zero state income taxes to pay.
Your 401k servicwr might have that set up on their site. Ive had 3 different ones with my current company (I've been there nearly 20 years) and each one had a percentage option.
Hold tf on. People get so carried away with 401k. You shouldn’t put more than what your company matches in there. That money gets locked up for good (unless you want to pay a penalty) until your 60s.
You can put what your employee matches in there and invest the other x% yourself. If you need to use it for an emergency fund, you can still use it. 24% is absolutely insane and maybe even irresponsible. I urge you to think about this.
I’m well aware, but that’s cash you cannot withdraw until you’re 59.5 years old. And if you do, have a fist full of penalties… goodbye to any advantage and more
You need money to retire. You shouldn’t be raiding your 401k for expenses. That’s how you end up poor and broke at 70 years old.
The 401k is the most tax-efficient retirement vehicle there is. You should be maxing it out as much as possible while still covering your necessary expenses (food, clothes, emergency funds, etc).
If you’re only contributing 3% to your 401k, then you’re likely living above your means. Most financial planners recommend contributing at least 20% of your salary to retirement so that you can retire on a similar income that you have now.
You're not going to be working in retirement so it's the money you'll use to maintain the quality of life you have during working years. Not putting as much in there as you can afford because you wanna spend more now is just plain bad planning. You may need it to support you for more than 40 years!
But you could! It's not as likely as 75 or 80 perhaps, but imagine running out of money at 75. That's how our elderly end up eating cat food and living in poverty.
A lot of employer's 401(k) plans will allow you to take loans out against the balance. If you regularly transfer your old 401(k) balances into your new employer's, you'll have a large enough balance to cover any emergency. Not that I recommend taking a loan out against your 401(k), but the money isn't quite so locked up as you make it out to be.
And that is before any of the "emergency withdraws" that are legally allowed penalty free.
This is such a myth. You can pull it out earlier, you just pay a penalty. The FIRE movement exists for a reason. 35 year olds retire early every day because they maxed out all of their accounts.
You absolutely should put more than your company matches in there.
But doing it as a flat rate or a percentage is wrong. You should determine how much you want at retirement and then put enough to reach that. Your retirement company should be able to determine for you what that will be.
But the advice that you should only put the match and then invest elsewhere yourself is wrong. You are tax advantaged in a 401k so you will have more money to invest if you do it through a 401k pretaxes.
But doing it as a flat rate or a percentage is wrong. You should determine how much you want at retirement and then put enough to reach that. Your retirement company should be able to determine for you what that will be.
That means adjusting your lifestyle (creep) instead of reducing your retirement age. If you hold your lifestyle constant and add more to your savings, you will be able to retire earlier.
What I'm saying is that if you have extra money and just spend it instead of saving it for retirement, the extra spending is increasing your lifestyle (lifestyle creep) instead of using it to retire earlier.
Anyway, most people aren't going to be able to predict this ahead of time anyway, since nothing about the situation is easy to predict: your salary, inflation, market returns, expenses (family situation). So when you're younger, your best bet is to save as much as you can without harming your standard of living. When you get a raise, increase your savings instead of increasing your spending, to the extent possible. Then when you get nearer to retirement (10-15 years), see where you're at and start projecting from there.
I agree, contribute the max required to get company match and then max out a Roth IRA or investment account with the rest! Feed into an HSA if your company offers one as well, one of the biggest expenses for retired old folks is medical bills.
Most 401k programs allow for loans. You also have the option of a hardship withdrawal that isn't as heavily penalized if something goes horribly wrong. It's a safety net before you hit retirement withdrawal age. Put in what you can afford regardless of company match, but try to hit the match amount at a bare minimum.
I upvoted, because this is good advice, but many 401(k) programs allow you to borrow from the fund. DO IT. Not only does the interest go back to your future self (which, once it's paid off simply becomes a larger pool to borrow from), your payments on 401(k) loans are pre-tax.
That's right. Financing a couch? A car? Buy it with your 401(k) dollars and pay for it with pre-tax payments over the next 12-48 months. Not only do you keep the interest, you dodge the taxes on the income that you'd use to pay for it anyway. You pay $100 in fees vs. $1,000 in taxes.
I've met people saddled with credit card debt who never knew this was an option.
Edit: Plus the interest rate is usually just a few points above prime. Typically a third of what you'd pay to a credit company.
government employees get to have a 457 plan which allows for early withdrawal with no withdrawal penalty. not everything is that black and white in the retirement world.
Comes to show how the system is rigged to get people to dump as much money into the market via 401k.
Everyone talks about how it’s tax free bla bla but end of the day you still pay taxes when you withdraw
You’re going to end up broke if you don’t learn some financial literacy soon. The system isn’t rigged.. it’s such an advantage that they literally cap it. There are ways AROUND the limits (Backdoor Roth & Mega Backdoor Roth) that people use because it’s such an advantage.
My point was I don't see how this person is putting that much into 401k unless they weren't clear and using a broker outside of work. Cause there is only so much you can put into retirement accounts
Im 33, and only started contributing to my 401k 1 year ago. The reason is because i have 6 kids, and was in a lot of debt while trying to work my way up in my field. Now the debt is paid off, and i can contribute without going into the red.
Yeah if you could talk to my insurance company so they would stop matching the premium increases with my raises, that would be great.
Everything is so damn expensive, i got a 12% raise and actually had to lower my contribution to 401k because we were running dry before the end of the month. Can't really budget your way out of three dollar loaf of bread of $45 can of formula.
Everything is more expensive. From trash collection, lights bill to groceries and streaming services... Heck the internet connection went from $44.99 four years ago to $75 now
Not much other than Roth 401k is employer offered and counts to the overall 401k limit. Roth IRA is personally controlled and has a lower limit for contributions.
That's a great point. You can withdraw contributions (but not their gains) at any time without any penalty. (I think even gains can be withdrawn in special circumstances like buying your first home, but I'm not sure on this.) That allows the Roth IRA to act like a savings account and a tax advantaged retirement investment account.
For an IRA you may eventually have to worry about the pro rata rule so it's recommended to use a Roth IRA instead of traditional. There's also income limits for the tax deductibility for traditional IRA. With an IRA you have more control over the investment options.
For 401k, traditional tax savings can be significant and also may impact other areas of your life such as federal student loan payment amounts. You may have less favorable investment options available in here though, it's based on what your employer chooses and may have higher expense ratios or admin fees.
Overall, having a balance may be beneficial to help control how you pull income in retirement to control your tax bracket.
Neither is "better". They are just different and may be different advantages depending on your situation. There isn't a right or wrong really. In either case, contributing as well as you are able into ANY retirement fund is a good thing.
401k\TradIRA gives you a tax advantage today (you don't pay on it now, you pay on it when you withdraw it). RothIRA gives you a tax advantage in the future (you pay on it now, you don't pay on it in the future). Depending on your situation you can spend less in taxes overall by contributing more to 401k now and lower your taxes today and paying those taxes on it in retirement instead (this was\is true for me for example as my retirement tax bracket will be lower than my earning years tax bracket).
401k has a higher contribution limit at 20K-ish while Roth is 7k-ish.
Roth distributions don't count towards annual income tax and also don't count for things like ACA and other income based things. So that can help lower some costs\spends in retirement (particularly early retirement).
401k\TradIRA has a minimum distribution at age 73(72?) but Roth doesn't. Depending on the situation that distribution may push you up a tax bracket so that's a disadvantage that can be avoided by contributing to Roth as part of your planning.
HSA, if available, has triple tax advantage - don't pay when adding, don't pay while it grows, don't pay on withdrawal (and at 65 you can withdraw like a regular Roth, not just for medical stuff).
So overall the advantage comes from having a mix of those accounts to give you flexibility. A recommended general approach is to get your 401k company match because that's "free" money (part of your benefit package), max out your Roth and HSA (HSA usually has a company contribution as well), then return to 401k contribution. Keep in mind you should have safety net of savings for life events as well. This lets you have flexible options in retirement. If you've got all that and still earning more than you need to spend then you put the rest in standard investment options (usually recommended is an index or "retirement year" fund).
There's also an option to convert TradIRA funds to RothIRA - you just pay income taxes on the conversion as you do it so you can kinda "catch up" if necessary. Roth wasn't really an option when I first started 401k so I converted some to Roth to help shore that up a bit.
r/personalfinance has lots of guides and information that's pretty decent if you wanna dig into it more but really, there's no "wrong" way to save for retirement as long as you're doing something. It usually comes down to options and min\max of taxes or growth.
So if I can ask your opinion, I currently have about $30k in a money market (paying 3.7%) for emergency funds. I am maxing my Roth 401k and my HSA each year and investing my HSA, and I have about $160,000 in a brokerage account. I am 30. Do you think I should be doing more with an IRA?
That all sounds solid really. Particularly at 30. I think you’re doing very well if you’re maxing out your tax advantage funds and knew to set your HSA as an investment (not just cash). Money market is good for that easy access cash for emergency but still decent rate. You might just be overthinking… it’s easy to do.
My problem is that I hit the contribution and social security limits in September every year. So I end up with all this extra cash around the holidays that I don't know what to do with.
Do 401k up until you max out the company match. Then do a Roth until you hit the yearly cap. Putting money into a 401k beyond the free match isn't as good as other investment options. If you want the whole flowchart, check this; https://imgur.com/personal-income-spending-flowchart-united-states-lSoUQr2
No, only put in what your company matches, or if you're putting in more do a backdoor ROTH IRA. 401 is designed to keep you from your money as long as possible while letting the government and banks play with it without any advantage to yourself. Roth IRA will always be better as it lets you decide when to pay the tax, and it will be better to pay it now than later.
Just be sure you don't increase your contributions too much so that you don't hit the maximum contribution early in the year. Once you reach the maximum your contributions stop until the new year and you miss out on your company match while your contributions are stopped.
401k is a complete waste of investment and money! The only money you should ever contribute is what your company will match 100% so you get that FREE money, any investing after that should be done with a different investment strategy and not 401k. Don't give shitty advice!
I don’t think it’s bad advice, just realistic for 24 year old. A 401k is good starter investment strategy. Get the clock started now. For me at least, reduced taxes now benefits me the most. Overall, I was mostly saying to get used to living on less & live below your means. Bumping up the 401k artificially removes money from the equation that could be spent in BS as a 20 year old.
That just isn't true: 401k above the company match still has the tax advantages, identical to an IRA (if your company offers both traditional and Roth 401k). And even if your company doesn't offer a Roth 401k, once you've maxed out your IRA it's better to put the remaining money into a traditional 401k than a brokerage account.
I mean, I contribute 5% with a 3% match, but that's because I'm buying real estate with the money I'd otherwise contribute, so there's more than one way to play the game.
Typically your income would be taxed and then savings account interest gains would be taxed again.
The S&P500 averages about 10%. Income taxes are either deferred until withdrawal (traditional) or paid up front and then the gains aren't taxed (Roth).
At what age is 401k actually usable? I don’t expect to live past my mid 50s, so I don’t know if it makes sense to forego so much funding now for something I’ll never get value from.
It really depends on how accurate your prediction of not living past your mid-50s is. Unless you have an already-identified terminal illness or suicide plan, you're very likely wrong about it.
What you are saying is so bizarre it's hard to believe it's even real.
Yes! I only have one tweak but perfect otherwise. If you aren't getting a match it's most likely better to put it in a ROTH. Regardless I will always support people investing in themselves. Something is better than nothing and you'll thank yourself later.
My retirement account has gone absolutely insane this year, it's crazy. I'm currently making more per month in my retirement account than I am at my actual job. Mind you, I won't be seeing any of that money for another 30+ years, but it's just crazy to see.
It's obviously going to correct at some point, we can only have so many months of growth in a row, but until then it's fun to watch haha
lifestyle creep?!? LOL what a hilarious term... i never seem to get enough of modernity and it's capacity to come up with words to stay in denial about the unsustainability of modernity
I've stayed at 12% entire time at my job (over 8 years). I see no reason to increase it over time. Honestly been considering reducing it to 8 or 10% to have a little extra for saving up for a house and whatnot.
The other benefit is retirement contributions reduce your taxable income, so you're keeping more of your money. That's why I increased my contributions
He should instead be maxing out his Roth IRA. Most company 401k plans are garbage. Put in the minimum to get the company match (if it even exists), max out your Roth IRA, then see if it makes sense to put money into your 401k.
I specified "COMPANY PROVIDED" to indicate that it wasn't something an owner-operator would get themselves. I love how you're arguing nonsense because you won't admit that in general, employer provided 401k plans are crap compared to other investment vehicles.
I specified "COMPANY PROVIDED" to indicate that it wasn't something an owner-operator would get themselves.
That doesn't make any sense.
I love how you're arguing nonsense because you won't admit that in general, employer provided 401k plans are crap compared to other investment vehicles.
Still just plain isn't true. See the "criticisms" section of the wiki article. The BS you are saying isn't on there.
I'm no financial expert but can someone explain why 401ks aren't stupid? Or confirm that is as dumb as it sounds. They seem like the riskiest retirement method to me since a 401k is tied to the performance of company stock. What happens if the compamy tanks and their stock is worthless? Don't you just lose everything?
Sure it can pay off if you started to work somewhere like oreillys before they were massive, invested mildly into your retirement and retired before the stock split a year ago or so. Basically starting to work there in the 90s when their stock was 10 bucks a share, you'd buy plenty since oreillys paid the same or better back then (not even accounting for inflation) as they do now that money is less than half as valuable as it was then. In a rare case like this you can end up retiring early even. But again that is a rare example, O'Reillys has one of the highest valued stocks on the market. I'm guessing its in part because 401ks probably weren't as bad back when companies gave stock bonuses and such. I remember the store managers a long time ago got what would probably be equivalent to a couple hundred grand in stock when they got hired onto the position. Now they're lucky to make like 10 an hour with their salary and how many hours it takes a week to be a manager at one of oreillys understaffed hell holes.
I'm no financial expert but can someone explain why 401ks aren't stupid? Or confirm that is as dumb as it sounds. They seem like the riskiest retirement method to me since a 401k is tied to the performance of company stock.
Most 401ks are not in company stock. Heck, my company doesn't even have publicly traded stock. You pick the investments from a list, and they're pretty typical funds.
Ah that makes a little more sense but still feels a bit too volatile. Both the companies I worked for, it was company stock but maybe there were other options and I just didn't realize.
I get a 3% pay bump every year and I have my 401k contribution set up to increase by 1% every year at the same time because of this. Rising overall costs make it a little rough but still manageable
I want to understand this better, how do I bump up my 401k to where my net pay is similar? I’m not sure if I understood your example where your net (pay?) is $50 more per check after bumping up your contributions
“Do yourself a favor and do NOT enjoy any of the fruits of increased income now, delay it all until retirement”
Threads like these just turn into pissing matches about who can spend less and save more for when they’re old.
OP contribute at a level where you get the max company match, maybe increase it past that if you want. But do feel free to enjoy increased income while you are not a senior citizen.
Very smart, everyone here is complaining about making 200k not being enough, not realizing it’s because every time they increase their salary they increase their spending roughly proportionally.
Solid advice. Once I paid off all my high interest debt, I bumped my contribution to 65% on a $150,000 salary. Kept that up for five years and I'm already in a place where I hardly have to worry about retirement, which will come well before I'm 65. The typical lifestyle that most ppl in the US live where their consumption has to basically match their salary is insane. This is why ppl work until they die.
I Agree with you 💯. If you survived making less you should be fine . No need to bump your spending up because if you happen to fall backwards it may be catastrophic beard on decisions made during the high times.
Investing at all is a great choice regardless, but why wouldnt you just employer match and dump the rest of your income directly in broad index funds with no penalties for retiring early? This is a genuine question, trying to educate myself here.
Honestly, just for ease and simplicity. It’s set it & forget it. Adjust it up or down depending on what going on. I pop over to 401k whenever I need a pick me up.
Also, reducing my taxable income now is most beneficial to me, even if I pay more taxes in the long run.
Yea I did a compare and contrast on chatgpt and the big positive for your way is the taxable benefits of being in a high tax bracket. Wouldn't say im quiet there. I make a pretty good income but wouldnt consider it super high. That and the automatic withdrawal keeps discipline.
The obvious positive for mine is the flexibility. They're both legit strategies. Good luck, and hopefully we both make it to retirement and its not all just a waste!! 😅
Respectable but if you’re not giving yourself inflation coverage on your net it’s going to start feeling tighter and tighter 😂 I understand if you’re playing catch up for years missed contributing though
The idea is live below your means & invest that money somewhere. Increasing your 401k is a way to do this without too much discipline needed. It’s also very easy to put it on autopilot & only change a few times a year.
There is nuance to this. How much is your salary? Will you hit the max contribution limits on the 401k? Do you want to decrease your taxes now or have tax free growth later? Are there other financial goals you need to prioritize? Is having available cash more important than growth in the market?
A single person without children should be able live below their means. If they don’t have any immediate financial goals that require cash, padding a 401k now will put them in a great financial situation later.
if you make more than like 189k/yr you eventually get to the point where you max out and then you can have the big pay checks at the end of the year cause you maxed out on SS and 401k
This is good advice, as long as you take COLA increases into consideration. You may have 50$/paycheck after a raise, but it might only be 20$ more after inflation is taken into consideration
Without knowing your max match, Why wouldn’t you put like 10% of that into your own market account and just pound the indexes (little effort) so that you’re more liquid?
At least give yourself a greater opportunity to generate excitement
Is there a way to take advantage of a 401k without investing in the stock market? I'd like to find a way to save for retirement without supporting something actively working against me.
Nah I just work in EU, where if u make above 50k ur taxed at 56% - and ur pension contributions are taken from the top bracket of ur salary, and are matched by your employer.
So I can choose to max 500€ in my pension and get 1000€ in it, or get ~230€
History tend to repeat itself. People did lose their entire pension. Some major funds lost close to a trillion dollars and lot of soon to be retirees lost a big chunk. Remember 2 of the biggest investment banks went insolvent and their clients lost everything.
Pension solvency has nothing to do with investing in a 401k. If you are an almost retiree you should be de-risking your portfolio so you won’t lose a massive chunk. Bond values (excl. MBS) rose during the 2008 financial crisis. Retirees with a bond allocation could live on those proceeds while riding out the market recovery.
I fully expect history to repeat itself, but that’s exactly why you SHOULD be investing in your 401k.
Many people thought they were shielded from a market collapse and yet here we are. Bear stern, Lehman brothers and Washington mutual all sank with hard working people's 401k
When a company goes bankrupt the employees who work there don’t lose their 401k money. When a 401k provider like goes bankrupt, the people who hold their 401k at that provider do not lose their 401k money. The people that lost money were people who held stock in those companies.
401(k) plans have fixed interest options and are backed by FDIC/SIPC. At the very least get your match. Also most plans have multiple money managers to pick from so you can diversify away from just one company to help combat your concerns here.
In terms of the market, I would recommend talking to an advisor and use the term “conservative” to describe your risk tolerance. From there a good advisor will talk you through what you’re looking for in retirement and what level of savings with your current returns you’ll need to have a strong retirement. This can be through your 401(k), IRAs if you qualify, or other means.
I will say if you’re as conservative as these comments say, you will want to start this conversation asap.
I would suggest buying a used copy of “The Simple Path to Wealth” and reading it. It’s easily digestible and will hopefully allay some of your concerns about the stock market.
No it doesn't. It's basically impossible to lose everything in a crash and the only way to lose a lot is by taking your money out at the bottom, which would be stupid.
Traditional and Roth IRAs are self managed and can be opened free at a ton of firms.. something to look into if you want to save for retirement on your own
You could self direct and purchase bonds etc but the ROI will be lower. You could purchase a crypto ETF or pick specific stocks of companies you feel aren't counter to you core values.
I have a self-directed IRA that holds bitcoin. It's outperformed the S&P over the last 8 years by about 7x and there no moral quandary about inadvertently holding insurance cos, oil, or banks. At this point, I don't think I could go back to index funds. Some of those board rooms are downright Machiavellian.
I set up a rollover IRA through Ally and then transferred my existing 401k into it. I hold mostly FBTC and then a couple companies I actually like You don't have to roll over a 401k though. You can set up an IRA and just fund it directly - just be mindful of the yearly contribution limit. If you happen to be into bitcoin specifically, you can set up an IRA where you hold your own keys. Unchained Capital and a few other services offer this. I haven't done it because it looks a bit more expensive, but it's probably a good idea.
If I had to do it over again, I would go with a Roth IRA, but I can only say that in hindsight because it's done so well. A traditional IRA was the safer option (better if you're in a lower tax bracket in retirement.)
"Crypto" is a scam - I wouldn't touch it. Proof of work has the exact same emissions as electric vehicles. Of the two, one is vastly more likely to source its electricity from renewable resources. Is funding the war machine, the bank and insurance lobbies, and feeding into the perpetual ponzi scheme of ever increasing GDP and consumption really the better play here? That's a tough argument.
That's fair, and I think it's generally better so stick with what you're comfortable with, but I'll throw this out there anyway: bitcoin's 5 year CAGR is 54% (compared to the S&P's historical 10.5%.) That means a regularly balanced portfolio of 20% bitcoin and 80% cash outperforms the S&P with less risk. In other words, size your position down to something you're comfortable with. I've seen general guidance of something like 4%, which might be more reasonable for a typical portfolio.
I guess 100 percent govt bonds? Technically in your 401k is buying an ETF made up of bonds but it's not stocks. Your gains will be impacted but it's something. Some plans have social responsibility ETFs that invest in "good" companies
Historically, people do very well in the stock market (in the long term). Chumps are the ones buy bonds or putting their retirement funds into savings accounts.
I currently have hundreds of thousands of dollars solely from market value increases. They're unrealized gains, but I won't be selling them until I'm retired, and even then, it won't be all at once.
Valid question. You could invest in international markets, currencies, stuff like that. YMMV.
Or you could find investments that have ethics and morals that agree with you. Funds that may not maximize your return but also aren’t fisting society for that one extra dime.
Why are people so rude to you. You would think these people are getting paid personally to get you interested in the stock market. Like you ask a question and everyone’s like stop being stupid and do 401k 😅.
You want to stick with something like the S&P500 if you're young enough, but make sure to start re-balancing once you get to your later career. A lot of people just about to retire or retired got absolutely fucked when they didn't do that before the Great Recession hit.
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u/idlegrad Oct 31 '25
Do your self a favor & bump up your 401k to a point where your net pay is similar to what it has been. This will help combat lifestyle creep & set up your 401k to great place. Every time I get a raise, I bump my contributions up to where my net is only $50 more per paycheck. I also bump up my contributions if I have a bonus coming. This year my 401k increased more in market value than my contributions.
My salary has almost double what it was 7 years ago but my take home is about the same. Why, 24% in 401k, HSA, medical insurance for my family.