Anyone in the late 20s early 30s depressed our future right now? (reports, account)
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Are you just talking about the pros and cons of 401(k) vs. Roth IRA? Or was your scope larger?
pros and cons of 401k vs a regular brokerage account with no special tax treatment. its "deferred" taxes, not eliminated taxes. people love getting that tax refund which is funny since they have no access to the money they just locked up for 30 years.
well i am 60 and i can tell you this. i graduated right into the horrible 70's . high inflation , no jobs , high taxes, markets that were dead for decades and worst of all vietnam.
but you know what ? like kids today there was decades of time left to make things better. although it never looked like anything would turn around for us eventually many many years later it did.
i was forced to shift gears and find a new career path but life went on and eventually many of us did ok.
the same may happen again , time has a way of eventually cycling things around and the next generation will be talking about how easy you had it.
yeah, people always like to complain about the younger generation. i dont really like to be a part of that kind of complaining but i am seeing a lot of negativity towards the younger generation now as if the other ones were any better. there was an article about how wonderful kids think they are now and how they post all these pictures on facebook and think they are special. my mom thinks her generation of baby boomers is so wonderful and her father was part of a generation that named themselves "the greatest generation." so its all kind of silly.
pros and cons of 401k vs a regular brokerage account with no special tax treatment. its "deferred" taxes, not eliminated taxes. people love getting that tax refund which is funny since they have no access to the money they just locked up for 30 years.
I'm not sure I follow the math on this one then.
Let's say you have $10,000 and can either put it in a 401k or a regular brokerage w/ no special tax treatment. And let's say you can get 8% market returns every year on average.
Where R = tax bracket in retirement, N = tax bracket now, c = average effective capital gains takeaway (somewhere between .85 and 1.0 if it's all long-term, depending on how long you're holding onto your positions).
Even if I spot you favorable terms of R = 25%, N = 20%, and c = 95%, the 401k option still comes out ahead.
Am I missing something? (this is very possible!)
In fact, if N = R, I don't see how the regular brokerage ever comes out ahead, since it would be 10000(1-R)*1.08^30 vs 10000(1-R)*(1+.08c)^30. As long as c < 1.0,which I imagine it has to be, 401k is always better, no? You're paying regular taxation one way or another - but at least w/ the 401k those same dollars have a chance to make money before going to the government.
Now, if you're saying an assumption of 8% returns for both is wrong, that may be valid. I grant that 401k's are more restrictive and may have more unavoidable fees/expenses and less flexibility. But that's a separate issue from deferred taxes.
Last edited by snowdenscold; 01-17-2013 at 07:15 PM..
Easy to say but it's still a what-if. If they DONT make changes to the 401k like I am worried about, then investing in it is great with the deferred taxes (and then I hedge that with investing post-tax in the Roth IRA). Either way it is a guess so saying "do this" only works in one of the scenarios.
For now I am playing the card of maxing out the 401k, hoping they don't make changes but if they do I can always withdraw at a 10% penalty if i REALLY have to (say they push withdrawal back really far and I want to retire)
No one is going to come and change anything with your PAID off car or PAID off house. I could max out my 401k but I'm choosing to have no debt by age 40.
Just about all of my friends from college in their late 20's are doing well but many of advanced degrees. They spend a fair amount more than me. The housing bubble and kids have set some reality in now though. Most have six figure incomes though.
No one is going to come and change anything with your PAID off car or PAID off house. I could max out my 401k but I'm choosing to have no debt by age 40.
I don't plan to have any debt either. Both of our cars are paid off, student loans are paid off, and we have no credit card debt. The only debt we are carrying is our mortgage and I am on pace to pay off our mortgage in 15 years (3 years in right now). So I'm not skimping anywhere else by maxing the other avenues.
Even if I spot you favorable terms of R = 25%, N = 20%, and c = 95%, the 401k option still comes out ahead.
it comes out ahead, especially if you expect to pay a lower tax rate in retirement. i know historically i should expect a lower rate, but im not comfortable planning on that. especially since im one of those evil people that saves a lot of money.
but it doesnt come out ahead by a lot. if you plug the numbers in a calculator available on plenty of sites, you will see a small advantage. for me, thats not enough to lock up my money out of my access for 30 years plus. id rather pay my taxes now at a right i know then wait until what happens then and wait to see what the government does with 401k's between now and then.
but it doesnt come out ahead by a lot. if you plug the numbers in a calculator available on plenty of sites, you will see a small advantage.
Well, under ideal conditions for you w/ an initial $10,000 amount, I get something like $75.5K vs. $72K.
But under more realistic conditions (IMO), it's more around $75K to $60K. Now that's enough to swing my vote.
Looking at old age in America makes me depressed. I think I'll include suicide in my retirement portfolio, if I would last that long, that is.
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