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I am simply questioning the logic behind maxing out a 401K when there is 9% DC being paid for by my employer.
The logic is that it will give you that much more money in retirement to spend. How much money you anticipate you'll actually need in retirement, and what the opportunity costs to you will be if you choose to max out your 401k instead of saving that money in a taxable account or spending that money now, is up to you to figure out.
In any case, I'd be sure to max out an IRA or a Roth IRA before maxing out a 401k, since those two accounts are 100% under your control (unlike the 401k plan, which restricts your investment options to what your company offers).
I am sorry to burst your bubble. Having only 300k at mid 40's is not alot. You should have over a million already in only your 401k. You have alot of catching up to do.
What metric are you working from to suggest at mid 40s you should have over a million in a 401k?
the one that means maxing out the 401k from their first job in their 20s...
between employer contribution and stock appreciation, after 20 years of maxing 401k, should be near or past $1 million
Tons of ludicrous assumptions here - that you could afford to max out a 401K at age 21 for the next 20 years, that your salary was high enough to warrant the high $1 million balance (would have to be nearly six figures), that you have the employer match, that your returns are in the 7% per year range, etc. etc. Some folks may have that much, but most do not come close.
Originally posted in another section that I think would be better served here:
My company provides the standard 401K plan (100% match of first 3%, 50% of next 3%) that I have been diligently contributing to since I was hired. In addition, my company also provides a very generous 9% of pay to an annuity plan each year via biweekly payroll contributions. Employees do not contribute to this and it does not count against the annual 401K contribution limits. I am now fully vested in that plan.
In a short amount of time I've built up a decent sized retirement plan at this company that should continue to grow well since I'm now essentially getting a lot of free (employer-paid) contributions (100%/3%, 50%/6%, then 9% of total pay). I have been contributing 10% of pay now for several years towards my 401K. I also have a good sized retirement plan from an previous employer that I've left with the plan due to lower fees and better investment options.
Question is this - would the employer-paid annuity play into your decision as to your contributions to the 401K plan? In other words, would you feel comfortable contributing the "minimum" of 6% to get the company match knowing you're getting the 9% annuity, or would you still contribute more to the traditional 401K not factoring in the annuity? Maybe I'm overthinking this but it occurred to me the other day that maybe I'm locking up too much of my pay into these retirement vehicles because of the way this is structured. In a normal 401K plan, you put it as much as you can afford to, period. But with the annuity I'm wondering if the annuity shouldn't factor into my decision as to how much to contribute to the 401K plan.
All of this income will eventually be taxable, yes?
I suggest you start thinking about Roth IRAs and plain old taxable accounts. If you need to cut back on your 401k contributions to make Roth IRA contributions affordable, do it.
I am sorry to burst your bubble. Having only 300k at mid 40's is not alot. You should have over a million already in only your 401k. You have alot of catching up to do.
Meh. Most people retire with far less than a million and do just fine. At any rate, knowing nothing at all about OP's income needs, you are only guessing as to what he "should have".
the one that means maxing out the 401k from their first job in their 20s...
between employer contribution and stock appreciation, after 20 years of maxing 401k, should be near or past $1 million
This may be likely true for people in their 50s and 60s who have been maxing 401Ks in low cost stock ETFs for 30 years, but is highly unlikely/unrealistic for people in their 40s in 401ks for 20 years. You would have to not just contribute the max that is matching, but the max allowed by the IRS.
In addition to a 401k type plan, I have a defined benefit pension plan at my job. I have always tried to save as if I wasn't going to get a pension. I'm a retirement savings wh*re, lol.
The more you have put away, the more options you have....to quit your job if you don't like it, or to work because you want to, not because you have to, or to do some other type of job or volunteer work that is more fulfilling than what you're currently doing. Even if you can't envision something more fulfilling than your current job, that can change quickly...or gradually over time, you can get bored at a job you used to love. So keep giving yourself future options!
So, between you and your employer, you're putting away 25% of your gross income for retirement. But your part of it is only 10%. I really don't see the point in cutting that back. When you factor in the tax break you get for contributing, you're not even putting in 10% (more like 7% or 8%). That isn't really much to notice a difference in your lifestyle, IMO.
So unless you really think spending more money is going to make you much happier (almost never the case for most people), I would keep contributing the amount you are and increase it over time if your pay goes up.
Last edited by mysticaltyger; 05-13-2017 at 12:15 AM..
It is a private company and while I know nothing is guaranteed, I'm confident the pension option will continue.
In terms of my age - mid 40s, just shy of $300K in total retirement for me. My wife doesn't have a ton saved so I'm thinking my 401K would help to offset her low balance.
I'm also mid 40s and have about 400k saved for retirement, plus I'm supposed to qualify for a pension at 55. You're in good shape, but not awesome shape. I'd keep saving and increasing it over time.
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