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OKay. Looks like they aren't over rated, but have you at least noticed that a lot of people don't even use them much after retirement?
Could that be because when you retire you can’t keep contributing? A lot of people will roll over the monies to a ira to gain more control but that’s not all that relevant. Do you even understand how any of this works?
This thread proves to me that 401Ks are still woefully misunderstood.
My last company had lots of people who had been born in other countries. Their rate of 401K participation among that population was dismally low. They just didn't see the point; couldn't conceive of a thing called "retirement" some day. At least the company had 3% mandatory contribution, with a 3% match, so even those who were willfully ignorant got something.
OKay. Looks like they aren't over rated, but have you at least noticed that a lot of people don't even use them much after retirement?
Everyone has to use them in some fashion once a person turns 70 1/2. You either have to withdraw the minimum amount required by tax laws, so assorted governments can finally tax that money, or directly donate the money to charity.
One never knows the amount of money that will be needed in retirement. You can estimate, but that estimate will be based on assumptions and conditions you think will occur. For many people, those assumptions will be generally accurate. For others, though, those assumptions will turn out to be very wrong. An accident, unexpected illness or one of numerous other calamities can use those dollars up pretty quickly. I would much rather have them and not need them instead of needing them and not having them.
We were both fortunate to work for an employer with a good 401k plan, and our IRAs now represent about 50% of our net worth. I do wish that Roth IRAs and 401ks were more widely available when we were working because the tax advantages that would provide today, although I may have still opted to max out a 401k because of the tax advantages it provided at the time.
OKay. Looks like they aren't over rated, but have you at least noticed that a lot of people don't even use them much after retirement?
Dude, it's all just money. People put their money in multiple places. A 401k is just one place. At retirement, as long as the money is available, people will pull it from wherever they have it.
The reason people choose to pull from the 401k last is because they don't want to pay the deferred taxes.
Of course, this only applies to extremely wealthy people who have a ton of money elsewhere.
If your employer offers a match, contribute to your 401(k) whatever you need to get the match. Then contribute as much as you can to a Roth IRA. If you can still contribute more to retirement, go back to the 401(k).
It's advice I wish I had followed when I was working. The kicker comes that the 401(k) withdrawals are taxed as ordinary income, while Roth withdrawals are tax free and unlike the 401(k), you can withdraw your Roth contributions early without a penalty. The conventional wisdom was (still is?) that your income will go down in retirement and therefore your marginal rate will be lower and the federal bite won't sting quite so much. But my income actually increased in retirement, thanks to a pension, social security and investments. I never made more than the US average wage, but I had the advantages of being healthy and very fiscally prudent, and I'm pretty sure I'm not alone.
The bottom line is that I wouldn't give my 401(k) back, but the 20 - 25% that the feds take out of each RMD sure smarts.
Quote:
Originally Posted by Berteau
OKay. Looks like they aren't over rated, but have you at least noticed that a lot of people don't even use them much after retirement?
Wow, Berteau, I'd love to see some hard stats on this instead of a vague pronouncement. Even if I didn't need the 401(k) funds in the first few years after retirement, they are my bulwark against disaster (unforeseen medical and legal bills maybe?) and the only way my sadly underemployed children will be able to cling to a modest middle-class lifestyle. So I'm not sure what you mean about "using" them; I'm betting you are < 40 y.o. and not facing the realities of retirement yet.
Is a person's compensation incomplete if they never sign up for a 401k?
If there's a match, absolutely. Absent a 401k, that money would have been given as additional salary. It's not "free money" that the company is giving away out of the goodness of its heart.
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