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getting advice of retirement, nothing wrong with that, but the OP is a personal data questionnaire. i see these too frequently on CDF. when i ask why, the answer is always, oh just curious.
Can someone please explain the rationale of not investing any more into the 401k than the company will match? It seems to me that unless a person is knowledgeable enough to manage their own investments and feels as though they could get a better return somewhere else, the 401k is one of the best vehicles - especially considering it is tax deferred. I'm not sure the average person is that knowledgeable. I'd hate to think that someone would interpret this advice as saying that rather than max out a 401k they should keep the additional as discretionary income or save it in a money market account.
A lot of people invest only up to the company match in their 401k because the options in their 401k plan are often overpriced.
A lot of 401k plans only offer a few funds from a single fund company that have bloated expense ratios (sometimes over 2%!).
Some companies have poor choices on their 401k, a friend of mine who works for a federal contractor only puts up to the match, because they give him 3% automatically without matching, and 50% matching on the first 6%, so by putting 6%, he gets 12%, and there is no need to vest. But the choices are all either bond funds, "balanced" funds, or domestic large cap funds. No small caps, emerging markets, target retirement, international, or other investment choices. He is investing the rest of his money in a Roth IRA.
Can someone please explain the rationale of not investing any more into the 401k than the company will match? It seems to me that unless a person is knowledgeable enough to manage their own investments and feels as though they could get a better return somewhere else, the 401k is one of the best vehicles - especially considering it is tax deferred. I'm not sure the average person is that knowledgeable. I'd hate to think that someone would interpret this advice as saying that rather than max out a 401k they should keep the additional as discretionary income or save it in a money market account.
What am I missing here?
Consider for a moment that the US spending and deficits will amount to a debt load of 200% of GDP by 2038 if Congress doesn't change its evil ways.
If this uncontrolled spending continues, my tax deferred 401k runs the risk of being taxed at rates that are unheard of when I retire in the 2040's. By only investing in what my company matches in my 401k, I am getting 100% return on that money plus whatever interest that account makes. I invest a bit more in my 401k on top of this to reach my goal of 20% savings.
My Roth IRA is tax free at retirement and I have more investment options than with my company 401k. I have professional management from an objective, fee based CFP in addition to an investment advisor is a straight shooter himself (for a salesman, anyway). I am basically taking a position that my taxes will be higher at the time I retire than they are now. I will gladly pay taxes now while they are reasonably low.
I plan on placing some short term money into a CD ladder as my general savings accumulates. This will give me the option of some liquidity every 6-12 months should I need it. I won't be doing that until my other goals are taken care of though, but that's the plan.
I'm 46, and my 401(k) is worth about $80,000 now. *sigh* There were some very lean years when I couldn't contribute anything, including three years spent at a company that didn't even offer a retirement plan. Also, after the stock market crash in 1987, I got scared and put everything in the safest investments (and the lowest yielding, of course).
I'm very glad that I listened to the financial advisor I work for. She warned me to only put 3-5% of my 401(k) into the company stock. The stock tanked pretty badly before the company was bought out, and I'm still recovering from that debacle.
I'm planning to work until I'm 70 if my health holds out. That should give me enough time to invest enough to live on if I'm very frugal. I have 10% withheld from each check, and the company matches up to 6%.
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