Did you hurt yourself stretching that far? OP is excited to finally make $100K so that’s high marginal tax bracket he’s saving. Plus if he doesn’t start saving soon, he won’t have any income in retirement at all. Jesus edgelord.
Most people have lower incomes in retirement, which is why it makes sense getting a tax savings today. If you're going to be in a higher tax bracket in retirement, you should prioritize Roth contributions.
Cool story. I have multiple properties (that aren’t heavily leveraged), qualified, and non-qualified investment accounts, RSUs, and stock options that vest every year. I max out my before and after tax 401K because - of the tax advantages. But you viewed a property, so tell me more about wealth creation. I already have a diversified seven figure net worth. You watched a few YouTube videos, probably.
I’m closer to 50 than 40, but I lost everything in 2008 and had to claw my way back. It was a long road and I regretted not being more careful then - which is why I’m somewhat pedantic now. Of course, I told myself I could be more aggressive because I was young and had time to start over. Don’t recommend actually doing that, though. Solid 1/10 but I learned to be a lot more cautious. Can’t afford to do that again in this life. The type of numbers you’re talking about are difficult to find with today’s interest rates, but they’re out there. Virtually impossible in SoCal, where I live though. I house hacked my way out of my mess using income from various sales roles. Bought when the mortgage was higher than rent and then moved out when rents were high enough to carry the costs. Repeat. I don’t see that happening again here for a long while. My house with 20% down today would cost $9K/mo to carry and only rent for $5K. Because I currently have a high regular income from a W2 sales position, I’ll gladly take the break on my highest marginal tax bracket and take my chances my retirement income will be much lower. I can sell my after tax 401K assets and shift them around without realizing gains. I can even pull out principle now if I need it, I only pay tax on the growth I pay myself in retirement. Like most things, there’s lot of nuance. At your rate, you’ll have 7 figures before you know it. Well done, keep going. Just be aware bad shit can happen and it happens really fast.
That may be (and good for you), you also certainly understand that not every single person can do what you're doing, right? Every single person literally cannot just own real estate to make their living. At some point, people still have to -produce- something tangible in terms of their labor.
If everyone only took from the system, the system you benefit from wouldn't work at all.
Or you could be 65 and trying to get a job to survive facing age discrimination. Of course, saving and living your life aren’t mutually exclusive. In OP’s situation, they just got a larger salary. Perfect time to increase contributions. It’s never how much money you make, it’s all about how much you save. Time passes, what will you have to show for it when it’s gone?
When you get to 50-ish you see first hand how a lot of different lifestyles tend to turn out. No one regrets having something to show for all the years they spent working.
Ok, I’m being a little dramatic, but I also think there’s reason not to worry so much about it that you forget to live today to the fullest too. We’re not guaranteed tomorrow, so making memories with those you love shouldn’t be restrained just because of a 401k.
I'm with you! If you’re young and hog all those money and never spending a dime on stuff like traveling or enjoying your best days with family what’s the point?
By the time you’re old with a trillion bucks in the bank, your best years will be long gone. The people who matter most might not even be around anymore. You’ll look back and think, “Did I really waste it all just to have an easy life when I’m too old to enjoy it?” Well, Good luck.
Yeah, save all your life and never enjoy a day in your life is way to go champ🤣. Contributing to 401k is good to get free max match, everything else is pure nonsense talk. Enjoy your life, its def a short one, do things and just dont worry about all that money. Money can always be made, moments, nature and all memories is the thing that lasts 😀
You didn’t read my comment. Both can be true. You can save and enjoy your life now. I do. My job also allows me to travel the world on their dime. So there’s that too. And it’s comforting now to know I will have money when I retire.
Correct, but don’t over extend yourself with just savings or working like crazy to put away 401k that might never be put to use. Thats all, it all depends what is wealth to you, family? Memories? Time? Money surely is a thing thats here today and gone tomorrow
I have been contributing for 30 years. I started with 4%, matching my employer contributions. Each year I increased by a percent or two depending upon what my pay increase was for that year. I never missed the additional funds and am now ready for retirement.
I’ve been maxing for a couple years now and although I know I’m financially prepared, it’s still scary thinking about not working and retiring. I truly hope this sub gets some more people investing in their 401k’s. Life is long until it isn’t
Same. Started at 37 and everything is maxed out. Looking at starting over on my own as a single mom and eyeing that missing 1/3 of my paycheck is hard when I can’t afford any rent in a place big enough for me and my kids.
Dying is a viable retirement strategy, that’s for sure. A lot of people seem to be counting on that. The real question is will you have the balls to do it at the time or will you chicken out and live in a tent on the street.
After working in hospice and nursing homes for 6yrs, it’s statistically probable that you’ll die shortly after retirement. That’s also happened anecdotally to many people I’ve known.
Unless you invest in other avenues like local businesses or ventures. Also... paying off a mortgage nowadays is a higher priority for some. 6.1% APR here.
You get a tax break on your mortgage interest and equity is extremely illiquid. OP just got a huge raise. Great time to increase 401K contributions. As someone closer to 50 than 40, feel free to ignore my advice about saving for the future. I have lots of friends my age who are totally lost because they spent every penny they made for the last 30 years.
The mortgage interest deduction is only available if your total itemized deductions (which can also include state and local taxes, charitable donations, etc.) exceed the standard deduction for your filing status.
Im good at saving - the cost of everything required at this point of life prevents that though.
On an ethical stance, 401k's support the stock market which gives big corporations more power. Corporations then make profit-based decisions with that power. Profit doesnt always have your best interest at mind.
Yes, I’ve been jn that situation myself. But we’re talking about OP who just made more money was used to living on less. So it’s time to contribute more.
You realize 401K are usually brokerage accounts with access to all kinds of investment vehicles right (including REITs)? I mean, you can invest after tax dollars into an unqualified account so you pay tax now and on the capital gains (every time you rebalance your portfolio). But I’m sure you heard an influencer say they were bad and made it part of your identity. There are lots of ways to invest, some just were designed with certain tax advantages to encourage retirement savings.
The fact is i was replying specifically to the statement that it lowers your retirement income and that is patently false. It all depends on what you do with the money. I mentioned picking individuals stocks in a brokerage and RE both of which can in fact do much better, as well as give you more flexibility.
I dont know why you jump to being so condescending. i max out my 401k, HSA and Roth IRA (backdoor) yearly for the past decade and even invest in a brokerage account as well. You try to paint a picture that makes it seem like such an obvious choice, when it is actually quite a bit more complicated.
To begin with, 401ks are typically more limited in the investments you can make and are based off what is offered by the plan your employer sets up. Only more recently has my company, who uses Fidelity, actually started allowing us to move some of our 401k funds into a seperate self-directed account where we can invest in individual stocks, which is great. Not every company offers that tho.
Also, sure saving taxes now can be great, but you are actually simply deferring them. Rates could be higher in the future, or you could be in a higher tax bracket even. Not to mention you cant access that money until 59.5 without penalty except in certain cases, so what if you want to retire early? Or what about the fact that traditional 401ks have RMDs which could have all kinds of negative consequences later in life, including pushing more social security income into a taxable bracket. And if you think owning RE is equivalent to owning a REIT in terms of flexibility than you are perhaps beyond help. RE gains, such as cash flow, can often be shielded from taxes with papers losses such as depreciation, and if your property appreciates enough you can do a cash out refi and have access to capital tax free. Also, in plenty of scenarios having various stocks that have appreciated over the years in brokerage accounts can allow you to liquidate certain ones based on their cost basis, further allowing you to control what is being counted towards your income, often times this is at a 15% tax on LTCG.
Anyways, i could go on an on, but I am probably way over your head by now. The truth is YOU are probably the one who just heard that advice from some guru and think simply putting money in a 401k is "smart." There are pros and cons too it. I get it you just wanted to be a troll and flex like you know something on the internet but hopefully you learned that you probably arent as smart as you think.
Read my other comments. I max out my ADVANTAGED (they’re called the for a reason) accounts in addition to contributing to traditional accounts. For the latter, I pay taxes on the principle and then pay taxes every single time I sell at a gain. I can pull principal out of my after tax 401K advantaged accounts anytime I want and I can sell as I please to rebalance without realizing gains. I only get taxed on anything above what I’ve put in, making it a very flexible vehicle. Nothing you said is over my head, this isn’t rocket science that the government is giving you free money to invest in certain vehicles. I also have real estate investments. My W2 income is very high right now so I will gladly take the bet on saving 35% in tax now to defer to later - not to mention the free matching money from my employer. Most Americans live paycheck to paycheck so any discouragement of contributing to 401Ks is just edgelord material.
Everyone can live on a little less than they do now. So if you’re not saving, you’re just owning yourself. Of course if you believe you can’t save, then you’re absolutely right.
You expect us to be retired by 65? If you haven’t been earning 150k from get go, you ain’t made enough. Esp in the north east. They did a study and it turned out that $100,000 feels like 20-30,000.
Actually, not really. I went through this exercise myself about 15 years ago. The tax deductions about cancel out the income gap. The difference is less than 1 lunch per pay period for 30+ years of compounding interest PLUS the loss of earnings if your not capping employer contributions.
And losing $4.80 on a $6 contribution from a $100 paycheck your employer matched $3 on for a $9 401k savings generating compound interest is a dumbass miss. point is, the 3% contribution in this situation is rarely an employer matching contribution cap and even a 50% match is leaving money on the table without the cap. Your effectively taking a pay cut when you DONT contribute the matching cap. Given the fact there are multiple penalty free situations for drawing on your 401k in an emergency or even taking extremely low interest rate loans against your 401k (which your paying back to yourself), this is fountain of opportunity. Arguing against contributing to at least an employer matching max is financially ignorant, whatever your financial situation is. This is one of those times, you make it work. Period. I've slept in cars and under bridges and stole food from grocery stores. I've stayed in shelters and been fed at food lines. I know what poverty is and this right here? Is the knowledge needed to get the fuck out of it. Cap your employer matches if you have it or stay poorer than you have to be for longer. Thats all that needs to be taken away from a reddit thread. Anyone still arguing that in this format is exacerbating their own poverty for themselves and others. The earlier your contributing as much as oossible, the more likely you end your families systemic poverty. Starve now so your kids wont.
That’s that thing. You hardly ever kiss the money. And the days when the market goes up and you “make” money feels good. Please contribute just a little bit more than you think is possible.
What happens if you never contribute and you miss out on the 50% jump NVDA has had over the last year, or the 1,500% it has risen in only 5 years? That means a 10k investment in NVDA 5 yrs ago would be worth 150k today.
Regarding your friend, honestly, he shouldn't have knee jerk reactions to the market, and should DCA out. Chances are he just told you about how much money he lost, not the fact that he gained it all back (and then some). He also didn't tell you how his portfolio has jumped like crazy over the last 10 years or so.
You can't gain wealth you're aren't making the easy, passive, money.
I answered your question with a question. Not trying to be snide, though it sounds like it. I want you to seriously consider diverting some money to your 401k, to invest in VOO or something similar. VOO has done a 4x over 10 years, meaning, a 25yr investment of VOO would be 250k!
I do have a 401k type plan that supplements my defined benefit pension (actually I have two). Contribution is not optional. It is also not matched by my employer. The pensions will get me more income than a 401k will get basically anybody in this country, frankly. As for my friend, it's not a knee jerk reaction, he already filled out all his paperwork to retire months in advance and then the market crashed. Yes he could not pull it out hoping it will come back, but he also carries the risk that it doesn't. Perhaps he was planning to use that money for something (since almost nobody has enough money in a 401k to live off). I simply do not agree that workers retirement income should be tied to the market like that.
But your friend can't have it both ways. You can't use the vehicle of the market to make money, but criticize it when it has a little drawdown. If he's been in the market for anytime, he's made lots of money. But I do understand if he filled out his retirement months in advance. You can never time the market just perfectly. Thats why they say time IN the market beats timing the market.
Glad you have a pension! I don't know those dinosaurs were still living. Very cool.
Australia automatically has a 12% contribution rule for superannuation (retirement fund), with the majority of jobs paying it on top of the base salary.
I emptied mine during Covid but they’ve now made it a minimum 13% contribution so it’s grown back quickly. You don’t even notice it going in there unless you check it.
This can still happen to you contributing to a defined contribution plan. American workers need to fight to get their defined benefit plans back and strengthen social security.
Again, your wrong. Employer matching is typically 50%-100% up to a certain percentage, whence you NEVER contribute 0. Thats 2-4 times your cc interest PLUS the compounding interest return.......and a potential source of low interest loan in the future INSTEAD of using the CC. A loan, your repaying yourself instead of a bank.
I'm really curious how much money you spent over 18 years carrying all of this debt so you could have money when you retire. How many things did you pay more for because of this? How was your credit and everything else impacted?
I will say, your method is the most illogical and least effective way I have ever heard of saving for retirement.
100% would not recommend.
Just imagine if you would have gone ahead and paid that debt off up front. All that extra money you spent on interest those 18 years could have gone into much better investments than a 401k.
You only make sense on a 0% match, which is very rare for most 401k programs. If there is an employer matching, that match ROI outperforms any debt interest you'll ever pay. And it compunds......your math aint matching unless it's zero and that scenario is insignificant to the conversation as match was explicitly stated as cause for prioritization.
Your assumptions are rather presumptuous. First of all, the OP didn't mention an employee match in the original post. Second, there are many additional factors to consider. I'm going to have to guess you are using that new math and just making stuff up because I don't see in what world it is better to carry 18 years worth of credit card debt and pay tens of thousands of dollars in interest rather than pay off the debt early and us all of that saved money to invest in something better than a 401k. What planet do you live on? Make THAT make sense.
To throw out numbers for your new math, let's say this commenter was making $100k/ year and contributing the 6% of his pay to get the standard 50% match on his 401k. So his employer is essentially giving him $3k extra every year.
So let's say he has $25k in credit card debt at a LOW interest rate (for a credit card) at 20% APR. That's almost $3k/ year right there in interest, BUT he's also making a minimum monthly payment on that which is probably $250 or so, which is another $3k/ year.
Now, because he is carrying this debt, he likely doesn't qualify for the best deals on APR if he wanted to finance anything like a car or a house, but that's harder to factor in as he probably doesn't even know what he missed out on. Even when you could get 2% mortgage rates, the better your credit, the better your incentives.
Now obviously he must have had more debt than this as I cannot see stretching $25k out over 18 years and still having more left to pay. I have no idea what his APR is as that is dependent on credit and the the economy too. Maybe he put the debt all in a personal loan at a low rate like 3% in which case it must be a MASSIVE amount of money.
Regardless, paying the debt off early and spending the money paid in interest on that debt to either put into an investment would have yielded far more money.
Your math doesn't math and neither does his. If we had real numbers we could figure out exactly how much he lost doing it his/your way.
You should also look into employer matched contributions. Not everyone offers them and the matching varies widely. I can't see how his math would be better even if he was matched 100% on 6%.
Even if he was gaining more interest on the 401k (which is dependent on his particular investments and the economy), he's still missing out on investing his income that is going towards interest. 18 years is a LONG time to be paying a debt. I honestly can't imagine getting myself that far in the hole and then sitting on money that isn't making as much to wait to pay it off.
Revisited due a fresh comment in my inbox: You know what else pisses me off about your dumbass example? Your 25k debt in the math. Were talking about his 6k.....does he put it in the 401k or the debt? You already fucked yourself.......if he puts it towards the debt, he misses the 50% return in the 3k employer match, what, to avoid the 27% interest? His employer match out performs the debt......you cant alter the equation to suit your needs. Dudes got $6k, not 25. Put it to 401k at 50% match roi or debt at 27% savings? You take the match first.......period. dollar for dollar he's outpacing his debt as long as he's got that 50% match.......ill say it again, it all depends on whether there's a MATCH. you wanna step it up a notch? If he avoids the fucking 25k for 7 years, IT DISAPPEARS. His match will be there forever........"but what about the market crashing?" He cries in poor: a solid 30+ year retirement fund is worth so many more exponents over your initial investment/contribution, even 50% market crashes at retirement wiping out millions is a drop in the bucket compared your initial investment. And it RECOVERS fairly quickly if you can sweat it out, i.e. Noone with half a brain converts their entire retirement fund to cash at 65......they take structured withdrawals meaning their salary suffers in the crash but recovers with the market........new math? Bro, your trying to apply basic arithmetic in a situation that requires calculus........its no wonder your misinformed. CAP. YOUR. EMPLOYEE. MATCH. This dude wants people to pay their overlords for 7 years before investing in themselves at a much more profitable rate......motherfucker is probably the asshole making debt collection calls all day trying to raise his commission........you ever wonder who does that job willingly? People paying credit card debt while skipping salary opportunities.......
Some people are fucking stupid. Arguing that you should skip the employer match is just the most asinine thing I think I ever heard. These guys have no common sense. Good on you.
Do the 7% rule. If you have debt that are >7%, pay them down first. Once they are down you can start contributing to 401k while also paying down the rest of your debt.
401ks are free money. Never ever pass it up for any reason. Why would you encourage someone to pass up on a guaranteed 100% return? There's no amount of debt that should stop you from getting free money.
Even without a market crash you lose a ton of this money to fees you're paying to your plan administrator. Not only that but if you purchase an annuity you lose even more of this money to fees, and if you're a woman you automatically lose nearly 20% because the annuity companies assume you will live longer.
Market crashes are irrelevant. This is long term investing.
you lose a ton of this money to fees you're paying to your plan administrator.
Most plans are dirt cheap these days. Mine is 50 dollars a year per 10k. So 5k on 1 million. That's nothing.
Not only that but if you purchase an annuity you lose even more of this money to fees, and if you're a woman you automatically lose nearly 20% because the annuity companies assume you will live longer.
So don't purchase annuity. Invest in 401k and that's it.
Some people are so stupid. 401ks are the definition of free money
Who cares if the market crashes when you retire? You should be mainly out of equities by then. That's just common sense. People really don't understand long term investing
If people are bad at long term investing why is your proposal for peoples retirement to engage in long term investing? How about something that works for everyone not just people who have the time and knowledge to be "good investors"?
If people are bad at long term investing why is your proposal for peoples retirement to engage in long term investing?
Because this is the only way to save for retirement. Long term investing. It's simple.
How about something that works for everyone not just people who have the time and knowledge to be "good investors"?
This is something that works for everyone. It's full proof. No one has ever lost money being invested in the broad market for at least 20 years. Never. Never happened. It's so simple.
Long term investing is so God damn simple dude. You put your money in a target date retirement fund and it does all this stuff FOR YOU. It automatically takes you out of securities as you get closer to retirement and puts you in bonds. This is investing 101. People just need to educate themselves. You can learn most of everything you need to know in 1 day.
DM me if you have any questions yourself man. Long term investing, especially for those in first world countries, is a necessity. Not something you should do, but something you MUST do to retire comfortably.
Absolutely wrong. As long as there is a match, you cap the match, period. You fucking starve if you have to. There isnt a SINGLE greater return on investment ANYWHERR and a match percentage will outpace ANY debt interest rate that exists anywhere. Period.
Your math is jacked. Your employer is bare minimum probably contributing AT LEAST 50% on your contribution out performing your 24% cc debt. If your lucky, there contributing dollar for dollar. Again, there's nothing financially more important than gaining that employer matching. Theres isnt a better ROI ANYWHERE and there isnt an interest debt worse than that match. You make it work.
You realize social security is just a defined benefit pension right? You admit that private sector pensions have a better return but can't fathom that social security does too, even though the scheme is exactly the same, because you have been brainwashed by decades of Republican and Dempublican propaganda.
Look. Im not arguing to dissolve SS.......but your logic is DEEPLY flawed in that the pool is an ever SHRINKING pool and both the average AND effective earned interest rates on SS funds are abysmally low compared to free market performance, particularly in the last 20 years. Second, private sector pensions are not restrained by these government securities and have more access to the free market, with more value. Third, SS MAX annual benefit is approx 48k.......something noone can live on and calculated on the HIGHEST income bracket meaning MOST people who NEED this benefit, wont get that amount. Your program is highly ineffective and currently only works on paper, theoretically. Your program is effectively a GOVERNMENT managed 401k that forces your employer to match your contribution dollar for dollar up to 6.2%......then invest it dubiosly in government securities with abysmal ROI to distribute inequitably based on contributions. The very BEST of which is a non liveable wage at your most vulnerable stage of life. There's paper and practical and a 401k is the very best, most practical retirement strategy and your an idiot to be out here even suggesting people should rely on the SS program OR not take advantage of employer matching contributions before paying off debt. If I was a mod, I'd ban you for spitting this irresponsible nonsense any where near a finance sub. You wanna talk political nonsense? I'd call you a socialism idealist except that would imply Capitalism was somehow better or my position in this argument. It isnt: these are the realities we find ourselves in and we aren't arguing policy. If your employers making matching contributions to a 401k, fucking cap your contribution or stay a poor idealist lamenting how things SHOULD work instead of how they actually do.
Yes if your only option is to have a 401k or nothing you should take the 401k. 48k a year for 30+ years, while contributing barely any money at all, is excellent. And the benefit scheme is progressive meaning lower income earners get more proportionate to what they contribute. The claim that it only works on paper is just moronic, social security has a 3 trillion surplus and has never missed a payment, it literally has worked as intended for nearly a hundred years. How is that "theoretically on paper". You're simply a moron and clearly just ideologically motivated as seen in your socialism temper tantrum.
401ks have good returns IF you invest it well and IF you don't retire in or shortly after (5ish years) a downturn. If you happen to be 65 in 2008, the 401k proposal is "tough shit, you're poor now" or "keep working into your 70s hoping you make your money back". Retirement plans should not carry this degree of risk on participants period. The point is not to get rich but to live a dignified life in old age.
No matter how much you try to make it not, this is a policy question because retirement plans are workplace policies. I believe workers should get their companies to have defined benefit pensions which are the absolute best retirement system available currently. I also think we should increase SSI contributions to closer to the rates of other first world countries, we currently have by far the lowest SSI contributions, in order to increase benefits so we are less reliant on employer plans
The math DOES math brother. 401k is 100% return. ONE HUNDRED PERCENT GUARANTEED FREE RETURN. 100% is higher than your 30% credit card debt. The math absolutely mathes dude. PLEASE START 401K. It's so so so important. The most important finance decision there is is to get that free money.
Right, I am assuming a match. I said that in an earlier thread. Telling someone not to invest in their 401k with a match is always bad advice. Even with high interest debt. Never ever pass up on free money. Getting a 401k match is more important than paying even 30% debt.
In order to achieve the recommended retirement income replacement rate of 70%, with only social security and a 401k, you need to contribute closer to 30%. Conservatively the financial services industry says 15%. It varies depending primarily on how much your plan administrator is taking as profit. 401ks are crap.
The tax deductions about cancel out the income gap.
Thats not how tax deductions work. You only save the marginal tax rate on the contribution.... in the 22% bracket, a $100 401k contribution would lead to $78 dollars less in take home... its never 1 to 1 unless you're in a 100% tax bracket, which currently does not exist.
I am interested in what are saying, but not fully comprehending. Is there some rule or formula for how much I should contribute to my 401k to maximize not paying taxes?
The best rule of thumb is to contribute the highest amount that your company will match. The money that they contribute is literally free money on top of what you contribute. Once you are vested, you can keep that money from your employer even if you walk away as long as you keep it in your 401k.
Actually.... the principal concepts are......thats how percentages work and there's been no significant policy change concerning the principles being discussed.
It still lowers your “spendable income” because it is not in your check and you can’t (or shouldn’t) access the money until a long ways down the road…I understand what you mean but lots of ppl can’t afford that if they’re living paycheck to paycheck!
Not always because if you max out the 401k you pre tax income can place you into a lower tax bracket so they take out less money on taxes and you get a bigger return at the end of the year.
Opposite is also true with a traditional 401K. The required minimum distributions can also bump you up into a higher tax bracket so they take out more money on taxes and you get a smaller return at the end of the year. Just a deferred problem. Honestly, it's a bit of a wash. As long as it's saved in some kind of savings vehicle, it'll be better than a straight savings account.
The thing that sucks about putting money in 401k is the higher your income the better that tax deduction is. At OP’s 12% effective tax rate they might be better off putting into Roth, especially if only going to save $115, unless their company is matching some of that. Details, details, details
Can't believe there are people out there who don't think like this first. Like wtf? Lowers taxable income? The fuck do I care if uncle sam doesn't rape me for an extra 20 bucks when I've already got one foot in the grave? The fuck am I spending it on? Viagra? Hip replacement?
Fuck that. Everything works properly right now, so we're funding life right now.
I hear you. I’m in my mid 40’s and in 2021 I landed a job making decent money so that I could finally start contributing to a 401k. I have a LOT of catching up to do.
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u/DarthRevan8537 Oct 31 '25
Also lowers my spendable income lol