Almost all the personal finance guides talk about maxing out your 401K and the likes every year, my question is why? Aside from the free money you get if your company does a 401K match, why is putting anything extra into these retirement accounts a good decision? Does it depend on circumstance? Possibly because, general timeline of any working professional is to retire at age X and then use money from these retirement accounts as their income to support themselves? What about people that dont think they will ever retire, they probably move from working for someone to working for themselves. They might even end up in a higher income bracket post age 59, for such people 1) why does it make sense to keep your money stuck somewhere where its only accessible (without penalty) after the age of 59. 2) given inflation and increased income, does that money even matter after that many years? 3) given the uncertainty about the future, shouldn’t the same money be more valuable post tax in hand today? For last 12 months, I have stopped contributing to my 401K and instead focused of optimizing cash at hand. Almost all the folks I talk to about this, tell me its a bad decision and that maximizing 401K is the only right way to invest. Looking to see if I am a minority of one on this opinion? #personalfinance #investments
Take the matching if you get it. Not all employers give matching. But only put more in if you have true excess in your paycheck. That money is not liquid until you’re 60 unless you leave your employer and then take the additional 10% penalty. I put max into 401k for decades, but my employers had crappy plans with poor fund options. I actually lost money over that time period after factoring in inflation. And then ended up losing most of what was left thanks to a QDRO as part of divorce settlement. 100k was left after 20+ years of saving. There’s nothing safe about 401k. Even when you’re following the script. If you fall on hard times you’ll enjoy having to take penalty after penalty as you draw down early on that nest egg. You can only avoid the penalty if you have special situation - either down payment on first home or you’re on edge of bankruptcy.
Just curious, how old are you? If you’re young, your opinion that you want to work until the day you die might change. Alternatively, you might be forced to retire due to health circumstances outside of your control.
Turning 30 this year. I might be too optimistic about not retiring ever, but for some reason can’t think of a scenario where I spend my time doing nothing productive
Fo visa slaves yes
This could be a possibility, yes But I also feel a similar way about retirement plan options I have back home
It comes down to investment opportunity. Most people don't have a better investment than a tax deduction + employer contribution + tax free growth. When you shift employers every few years, you can do a rollover and move 401k funds to better securities such as stocks or ETFs or mutual funds. 401k also offers protection benefits. If you want to do better than this, you will need a better opportunity readily available. Usually nobody has that.
Thanks, this makes me the most sense Hadnt thought of it in terms of available opportunity.
This pretty good man. Thanks
I only do pre tax contributions to max limit but if you do roth conversion your investments to it will be tax free as well. So it is mainly tax feee growth. Otherwise long term stock investments will be taxed 15% I believe