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But you have to leave your job in order to do that, correct?
Folks who max out their retirement savings typicall have other savings as well. I have a fair amount of cash in savings and investments in a taxable account, the idea that the retirement accounts sit untouched for 30 years is exactly what they are for
Run the numbers to determine how much you'll need for retirement based on the lifestyle you plan to have. If you're really capable of socking away 70k per year in retirement accounts, you could do that for the first 10 years or so, then scale things back to just getting the match in those accounts and put any extra money into a regular brokerage account.
I'm 36 and plan to retire early. Currently I max out my 401k and Roth IRA, and I'm diligently paying down the mortgage which should be gone by the time I'm 40. After that my mortgage payment will go into index funds that I can potentially use during that gap between whenever I choose to retire and 59.5.
21k in company contributions with 4-5% matches? That's a hell of a HH income, roughly 400-450k/yr. I'd say putting away 50k/yr shouldn't be much of an issue on that income. Just contribute additional to a brokerage.
I can't believe there is somebody out there trying to rationalize not maxing out their 401(k).
I'd have to look at what rate of return mine is getting vs a taxable side portfolio through Fidelity, but I think my fidelity portfolio of mutual funds is performing better than the retirement account. We have limited options in the retirement account.
Also, I've seen people liquidate their 401k because they needed the money (whether they could have done something else to prevent needing that money is another story), and either didn't know about the 10% penalty to the IRS, or the option 72t distribution - I didn't know about that one, or assumed that taxes would be taken automatically by payroll, and when they file their tax return for the year is when that 10% penalty shows up. One person I met owed a whopping $16k after he left his company and liquidated his 401k! We didn't get into it, but he should have rolled it over assuming he didn't actually need all that at once.
So, looking at numbers with a 401k you get about $18,000 a year to put into it. With two income households that is ~$36,000 a year.
Now add in company match and we're at around $57,000 a year. If you want, throw in two IRA contributions ($11k) and you're at $68,000 a year in retirement (I actually really like the Roth IRA, the biggest problem is funding it to get it going and up to a large enough amount to make decent gains mean something).
OK, so you are putting in a sizeable chunk of money, but for us 59.5 is over 25 years away. That seems like an inane amount of time to lock up - almost $70k annually.
I do realize things could change, and that is a worry if we'd stop or reduce contributions. We haven't ever maxed out a 401k, ever.
What if you want to retire early? Can you take that money out without penalty or are you stuck waiting (I know you can take Roth IRA contributions out without penalty)?
It's for this reason I was thinking of contributing more to a brokerage account instead of maximizing the 401k. What if we get sick and want to use that money now to enjoy it? What if something happens job wise, and we lose our income, it would also be nice to have access to that money, or instead of saving it, spending it now to enjoy it while you can. That is a sizeable amount of income to be locking up for over 25 years in the hopes you'll make it.
The biggest advantage is if you get a company match, in which case, one would be foolish not to get that. The other is the shift of taxes when you may be high income working to when you may be low income and not working. In my case, I've been in the top tax bracket for over 20 years.
Now as I approach the age allowed to take out without penalty, I plan to retire at age 59 and once eligible to take out the money w/o penalty, withdraw it as I need it until I turn 66 and start drawing social security. I have a pension and investment income at about $5K/mo that I will start at age 59 when I retire and use the 401K to supplement my income and to buy the toys we want. I will stop drawing out of 401K when I hit 66 and can get SS. One caveat, I will be forced to draw it out after age 70.
One note, there are exceptions to allow you to take money out which may apply in the circumstances you mentioned.
A taxable investment account is a way to retire early. After building a sizable amount you can live off or supplement rental income or whatever other income you have. Just draw a small percentage of it each year.
I would think everyone knows when participating in an IRA that the money is inaccessible until 59.5. At least without having to go through hoops or penalties.
I'm not sure why you're so worried about locking up all this money. If you want to pay the taxes now on some of it and invest it outside of retirement vehicles, go for it. If 59.5 is 25 years away for you, then we're about the same age. When my wife was working, we both put in $17k, plus $5k into a roth, making $44k for some kind of tax advantaged/deferred retirement contribution. We did this for about 4 years. She quit working to stay home with our infant and so I do my own, and then we save outside of this amount for additional savings. Not sure if you have kids/adequate home/interests in having a good time now, etc...but money has a way of getting eaten up and so this helps hold onto cash that we can't touch for the future.
The other thing to consider - what do you consider retirement? Having watched a couple of our parents retire in their mid 50's, I have no interest in doing so. I'll still be earning money somehow at that age.
I can't believe there is somebody out there trying to rationalize not maxing out their 401(k).
Because it's a lot of money that you can't touch until I quit my job, which I have no intention of doing. It would be different if you could take that money out at any time any use it. Of course, it's very possible something happens to my job (I work in an unstable industry) but I can at least plan to stay here till 65.
Because it's a lot of money that you can't touch until I quit my job, which I have no intention of doing. It would be different if you could take that money out at any time any use it. Of course, it's very possible something happens to my job (I work in an unstable industry) but I can at least plan to stay here till 65.
Most 401k plans come with options to take loans out, there are potential issues with it but an option.
Do you have an emergency fund?
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