How much money should people put into 401K? (pay, income, savings)
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I am currently 36, married, but no kids yet. I currently max out my 401K, but I have to live a relatively austere lifestyle in order to do so. As you may have read from other threads, I am still using a basic phone, and I am starting to want a smart phone.
The dilemma is that I have 2 major fears, which unfortunately have opposite solutions.
Fear #1: One fear that I have is that by the time I reach traditional retirement age, that Medicare will either no longer exist, or have a ridiculously high age limit, or either be ridiculously expensive or cover nothing anymore. That would mean that I (and others from my generation) won't ever be able to retire, regardless of 401K balance, since health insurance will not likely be available at any reasonable cost if you don't get it through your employer. That basically means that any money that I put into my 401K is basically wasted money. So I may as well reduce my 401K contribution and get a smart phone and data plan, and enjoy life a little more, knowing that I unfortunately won't ever be able to retire.
Fear #2: On the other hand, my other fear is that when I reach a certain age, that even if I and others of my generation are will become unemployable when we reach a certain age, even if we are still willing and able to work. There are many posts on this forum about age discrimination. I know it's illegal, but it's obviously that it's difficult to enforce. Also, I do not have a managerial personality at all, so I fear that I in particular will have a problem in my career when I reach the age and experience level that I am expected to be in management rather than as a worker. Knowing that there is a chance that I'll someday become unemployable, I feel that I should max out my 401K at all costs, no matter how austere it would require my lifestyle to be currently, and that I should just keep my dumb phone for as long as possible.
My point is that the solution to Fear #1 is to put less into my 401K, and the solution to Fear #2 is to max out my 401K at all costs.
Unfortunately, a very likely scenario is that both fear #1 and #2 happen. That would mean that our society is completely screwed, to be honest.
What do you recommend that I and others of my generation do?
Fear #1: One fear that I have is that by the time I reach traditional retirement age, that Medicare will either no longer exist, or have a ridiculously high age limit, or either be ridiculously expensive or cover nothing anymore. That would mean that I (and others from my generation) won't ever be able to retire, regardless of 401K balance, since health insurance will not likely be available at any reasonable cost if you don't get it through your employer. That basically means that any money that I put into my 401K is basically wasted money. So I may as well reduce my 401K contribution and get a smart phone and data plan, and enjoy life a little more, knowing that I unfortunately won't ever be able to retire.
I don't understand this logic ... what do you mean "wasted money"?
Whatever you save is yours to spend. Just because you fear your cost of living will rise when you retire doesn't mean the money you saved went to waste ... it just means it won't last as long as you need it to.
This means you have to save as much as possible and invest that 401k money appropriately for growth and not just park it in some money market fund.
And I think you can afford the $40/month extra for a smartphone and data plan if you think you're missing out on something.
I am your generation more or less. I prioritize contributing to my 401k to the max ($53,000 this year) and IRA (whenever possible). If you keep doing this, and invest, your 401k will grow to a point where it is self-sustainable. At that point, you'll be able to survive without a job.
A smartphone, to me, is a money-saving device. It's a solid investment that saves me money and time. However, I wouldn't look into reducing my 401k to pay for it (if I couldn't afford it). I'd look at other sources of income or savings.
Frankly, I'm not counting on these fears. Just make as much as you can, and save a good portion of it.
I didn't know max 401K contribution was that high. I thought it was 18K before any company match. Are you saying your company contributes 35K to your 401K?
I didn't know max 401K contribution was that high. I thought it was around 17K a year before any company match.
$53k is the max of employee and employer contribution. The 17K is the limit you can contribute from wages. It is not the maximum contribution allowed to your 401k overall.
The limit for 401k contribution from the employee + employer is $53k this year (only $18k from the employee). He's probably making after-tax 401k contributions.
The limit for 401k contribution from the employee + employer is $53k this year (only $18k from the employee). Never heard of a 200% employer matching with no limits before. Mine only matches 100% to $6k.
Assuming a 100% match on 6% you'd have to make over 580k/yr to approach the 53k.
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