Maxing out retirement accounts

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 6:43 pm

Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.

Soon2BXProgrammer
Posts: 418
Joined: Mon Nov 24, 2014 11:30 pm

Re: Maxing out retirement accounts

Post by Soon2BXProgrammer » Thu Dec 28, 2017 6:46 pm

it took me a few years, but i bought a house and didn't know what i was doing.. my father did beat me on the head with a club with "every time you get a raise... don't take it, and put it in your 401k"... the club... was more powerful then me wanted another new shiny thing...

Gill
Posts: 4586
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Maxing out retirement accounts

Post by Gill » Thu Dec 28, 2017 6:46 pm

I maxed out my entire career although the limits were not as high as they are today. Sign up for the max and learn to live on the rest. You’ll be glad you did.
Gill
Last edited by Gill on Sat Dec 30, 2017 8:19 am, edited 1 time in total.

Kababayan
Posts: 111
Joined: Mon Jun 27, 2016 10:09 pm

Re: Maxing out retirement accounts

Post by Kababayan » Thu Dec 28, 2017 6:58 pm

I had to get to the point where I could afford to max-out. My wife always wanted us to open a retirement account, but after rent and groceries there wasn't anything left. Finally I was making enough for us to buy a house first, and then we were able to max-out both Roth IRAs. I was feeling guilty for a long time about starting our retirement savings so late, but it takes money to make money and there just wasn't any more money at the time. I started when I was 35 years old but will end up with a pension, two maxed-out Roth IRAs, and a high equity home (I live in Southern California) when I retire. I feel very confident with my retirement even after staying so late. If you are starting late, or not making out yet, don't feel bad. You have to take care of yourself now too. When the extra money states to come, go at retirement savings full force.

bigred77
Posts: 1997
Joined: Sat Jun 11, 2011 4:53 pm

Re: Maxing out retirement accounts

Post by bigred77 » Thu Dec 28, 2017 7:04 pm

My household has the opportunity to put away about 80k per year in tax advantaged space (including employer match) but we can’t (or won’t) put that much away.

Our goal has always been to aim to sock away 25% -33% of Income from day 1 (when we were in our early 20s). One day when the house is paid off, the kids are launched, and/or our incomes jump drastically, we’ll revise those percentages higher.

ImUrHuckleberry
Posts: 116
Joined: Sat Apr 15, 2017 7:44 am

Re: Maxing out retirement accounts

Post by ImUrHuckleberry » Thu Dec 28, 2017 7:10 pm

bigred77 wrote:
Thu Dec 28, 2017 7:04 pm
My household has the opportunity to put away about 80k per year in tax advantaged space (including employer match) but we can’t (or won’t) put that much away.

Our goal has always been to aim to sock away 25% -33% of Income from day 1 (when we were in our early 20s). One day when the house is paid off, the kids are launched, and/or our incomes jump drastically, we’ll revise those percentages higher.
If you've been saving 25% - 33% since your early 20's you will likely be in excellent shape regardless.

260chrisb
Posts: 199
Joined: Wed Apr 28, 2010 7:26 pm

Re: Maxing out retirement accounts

Post by 260chrisb » Thu Dec 28, 2017 7:30 pm

It's probably not realistic for you right now. My early years of retirement saving were nowhere near the max nor was it even a thought looking back nor do I recall ever actually knowing what the limits were at the time. I wasn't making enough to get there anyway and was more focused on simply saving something, anything, for retirement. I was in my early thirties and was yet to save a dime. As I got older and started to make real money I set an aggressive percentage for the year and accidently maxed for the first time many years ago early in the 4th quarter. After that it became obvious I could likely do it every year and not miss the money and made it happen earlier each year. After that it was about how early in the year I could do it so I front loaded it to the max each year for 10-12 years until my company changed their matching policy thus forcing me to do it per pay event thru the year to get all of their matching money. Don't focus on the max but instead on the discipline to do it. The max will come in time.

User avatar
GerryL
Posts: 1772
Joined: Fri Sep 20, 2013 11:40 pm

Re: Maxing out retirement accounts

Post by GerryL » Thu Dec 28, 2017 7:37 pm

I maxed out every year I was eligible, which meant once I was in my late 30s and had stopped bouncing around the world. Opened my IRA in the mid 1980s when I finally had a real job (and the max was only $2k). In the 1990s got a job with a 401k and maxed that every year until I retired in 2014. When Roth IRAs became available, I started one and maxed it every year until my income disqualified me, just before retirement.
I was fortunate that I was able to stay out of debt in those early years. Now I have more money than I know what to do with, but I am in no way sorry that I devoted so much of my income to savings.

Bacchus01
Posts: 1815
Joined: Mon Dec 24, 2012 9:35 pm

Re: Maxing out retirement accounts

Post by Bacchus01 » Thu Dec 28, 2017 7:39 pm

Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.

When I started it was really hard to do because most plans for 401k, for example, had % contribution limits that were pretty low.

I’m 1998, for example, the limit to a 401k was $10k and the plan I was in limited your contribution to 20%. Making just $30-$40k at the time, I couldn’t hit the limit. I did do 20% though.

livesoft
Posts: 62307
Joined: Thu Mar 01, 2007 8:00 pm

Re: Maxing out retirement accounts

Post by livesoft » Thu Dec 28, 2017 7:50 pm

Like Gill, we did it from the beginning in the early 1980's and are still doing it. My goal was to retire early from the get go.
Wiki This signature message sponsored by sscritic: Learn to fish.

Grt2bOutdoors
Posts: 19077
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Maxing out retirement accounts

Post by Grt2bOutdoors » Thu Dec 28, 2017 7:55 pm

Always saved a minimum of 15% of either gross or net income throughout employment period. Did not always have access to an employer sponsored retirement plan, but there are other taxable vehicles one can use that can serve multiple purposes including retirement. Our goal is to be able to retire with a comfortable lifestyle.
Last edited by Grt2bOutdoors on Thu Dec 28, 2017 8:02 pm, edited 1 time in total.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
dwickenh
Posts: 1296
Joined: Sun Jan 04, 2015 9:45 pm
Location: Illinois

Re: Maxing out retirement accounts

Post by dwickenh » Thu Dec 28, 2017 7:58 pm

I started at 5% and kept increasing it until I reached 30% after age 55 with catch-up contributions. Do I wish I would have started with more, YES. But I was also supporting a wife(SAHM) and 4 children. I really didn't have a choice but to save what I could and raise it slowly. We did take vacations every year with the kids and lived life as well.
The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.” | — Warren Buffett

Lonestarz
Posts: 97
Joined: Sat Oct 14, 2017 8:40 pm

Re: Maxing out retirement accounts

Post by Lonestarz » Thu Dec 28, 2017 8:03 pm

Always; paid 401k first then saw what was available for rent and groceries. Definitely lived below my peers in consumption to allow that.

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Thu Dec 28, 2017 8:04 pm

Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool

Spirit Rider
Posts: 8583
Joined: Fri Mar 02, 2007 2:39 pm

Re: Maxing out retirement accounts

Post by Spirit Rider » Thu Dec 28, 2017 8:22 pm

Grt2bOutdoors wrote:
Thu Dec 28, 2017 7:55 pm
Always saved a minimum of 15% of either gross or net income throughout employment period. Did not always have access to an employer sponsored retirement plan, but there are other taxable vehicles one can use that can serve multiple purposes including retirement. Our goal is to be able to retire with a comfortable lifestyle.
This is the key point.

Absolute dollar amounts such as "maxing retirement accounts" are a largely irrelevant metric. They are unreasonable large for lower incomes and unreasonably small for higher incomes.

It is much better to target a reasonable retirement savings rate and allocate that first mostly to tax-advantaged vehicles and then to taxable vehicles if/when you have maximized them.

This single minded mantra from many on this forum is not useful and is discouraging to many new members of modest means.

It is also not helpful for this tendency of using absolute dollar amounts for just about everything. We know the demographic of Bogleheads skews fairly high. Scaleable metrics in all things are always much more useful.

HockeyFan99
Posts: 17
Joined: Wed May 22, 2013 8:53 pm

Re: Maxing out retirement accounts

Post by HockeyFan99 » Thu Dec 28, 2017 8:33 pm

I agree with others above re: focusing on saving a decent percentage vs. whether or not you are "maxing out".

The only thing I will add: if you are fortunate enough to be able to max out your 401(k), consider whether there are other "retirement accounts" you might tap into before you turn to other uses of your funds, and especially any taxable investing.

In particular, (1) consider a Backdoor Roth IRA from a non-employer and after-tax IRA contribution and (2) see whether your employer allows you to make after-tax contributions that can be converted into or rolled out to a Roth (aka the "Mega Backdoor Roth").

It took me starting to regularly read Bogleheads before I even learned of these options, and it changed my understanding of what "maxing out" my retirement accounts even meant.
"I'm spending a year dead for tax reasons." - Hotblack Desiato

ImUrHuckleberry
Posts: 116
Joined: Sat Apr 15, 2017 7:44 am

Re: Maxing out retirement accounts

Post by ImUrHuckleberry » Thu Dec 28, 2017 8:40 pm

KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
How do you figure what the median family spends based solely on the median household income?

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 8:43 pm

KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Thu Dec 28, 2017 8:47 pm

ImUrHuckleberry wrote:
Thu Dec 28, 2017 8:40 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
How do you figure what the median family spends based solely on the median household income?
ImUrHuckleberry,

I make a guess. Tax (FICA, Medicare, Federal, state) is probably 20K.

KlangFool

Dottie57
Posts: 4288
Joined: Thu May 19, 2016 5:43 pm

Re: Maxing out retirement accounts

Post by Dottie57 » Thu Dec 28, 2017 8:48 pm

Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Nope. I didn't until about 55. I didn't make enough to pay my bills an put in the max. Started with 6% 401k. Starting at age 31. Each raise upped the 401k amount. I didn't get a living expense raise foe 5 or 6 years. Then worked on mortgage. Didn't start Roth IRA until 2012 (big mistake). For last 5 yeats I have maxed out.

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Thu Dec 28, 2017 8:59 pm

Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
Esq123,

Are you single or married? Do you own a house? My household consist of 4 persons. I have a house. My annual expense is about 60K excluding college expenses.

<< Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.>>

You are paying a lot of taxes by not contributing more to your Trad. 401K account. Do you pay state income tax? At 25% marginal tax rate, you are paying 25% tax on every dollar you do not put into your Trad. 401K account.

<<Saving 15% each year for retirement >>

No, it has nothing to do with saving for retirement. It has to do with deferring tax and keep more of your money in your pocket instead of paying taxes.

<<My salary is around 85k a year and I spend probably 30-35k a year on necessities.>>

Your numbers do not add up. Assuming that you are paying 33% tax in total, the tax ~ 25K. Let's say that you spend 35K, you can save 80K - 35K -25K = 20K per year. You can max up your Trad. 401K.

KlangFool

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 9:04 pm

KlangFool wrote:
Thu Dec 28, 2017 8:59 pm
Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
Esq123,

Are you single or married? Do you own a house? My household consist of 4 persons. I have a house. My annual expense is about 60K excluding college expenses.

<< Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.>>

You are paying a lot of taxes by not contributing more to your Trad. 401K account. Do you pay state income tax? At 25% marginal tax rate, you are paying 25% tax on every dollar you do not put into your Trad. 401K account.

<<Saving 15% each year for retirement >>

No, it has nothing to do with saving for retirement. It has to do with deferring tax and keep more of your money in your pocket instead of paying taxes.

<<My salary is around 85k a year and I spend probably 30-35k a year on necessities.>>

Your numbers do not add up. Assuming that you are paying 33% tax in total, the tax ~ 25K. Let's say that you spend 35K, you can save 80K - 35K -25K = 20K per year. You can max up your Trad. 401K.

KlangFool
Right. I’ve been saving more after tax money for short terms goals..

davebeers
Posts: 1
Joined: Thu Dec 28, 2017 8:32 pm

Re: Maxing out retirement accounts

Post by davebeers » Thu Dec 28, 2017 9:05 pm

I understand how hard it is to max out accounts.
33yrs old, married, single income household, 3 kids with no college savings

We are currently maxing out my 401k and IRA but it probably wont last as i'll be starting school in May and will have to pay cash for it.

My thought process is that I am investing in my future earning potential and that will pay more than suspending retirement contributions for 2.5yrs. A

Grt2bOutdoors
Posts: 19077
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Maxing out retirement accounts

Post by Grt2bOutdoors » Thu Dec 28, 2017 9:08 pm

Esq123 wrote:
Thu Dec 28, 2017 8:43 pm

My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
OP - do not be discouraged. You have time, just keep saving, save more percentage wise as you earn more, keep expenses low and let compounding work its magic. :sharebeer
Remember - everything in moderation, all else will fall into place.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 9:13 pm

Grt2bOutdoors wrote:
Thu Dec 28, 2017 9:08 pm
Esq123 wrote:
Thu Dec 28, 2017 8:43 pm

My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
OP - do not be discouraged. You have time, just keep saving, save more percentage wise as you earn more, keep expenses low and let compounding work its magic. :sharebeer
Remember - everything in moderation, all else will fall into place.
Ok thank you. :beer

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Thu Dec 28, 2017 9:18 pm

Esq123 wrote:
Thu Dec 28, 2017 9:04 pm
KlangFool wrote:
Thu Dec 28, 2017 8:59 pm
Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
Esq123,

Are you single or married? Do you own a house? My household consist of 4 persons. I have a house. My annual expense is about 60K excluding college expenses.

<< Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.>>

You are paying a lot of taxes by not contributing more to your Trad. 401K account. Do you pay state income tax? At 25% marginal tax rate, you are paying 25% tax on every dollar you do not put into your Trad. 401K account.

<<Saving 15% each year for retirement >>

No, it has nothing to do with saving for retirement. It has to do with deferring tax and keep more of your money in your pocket instead of paying taxes.

<<My salary is around 85k a year and I spend probably 30-35k a year on necessities.>>

Your numbers do not add up. Assuming that you are paying 33% tax in total, the tax ~ 25K. Let's say that you spend 35K, you can save 80K - 35K -25K = 20K per year. You can max up your Trad. 401K.

KlangFool
Right. I’ve been saving more after tax money for short terms goals..
Esq123,

You are paying 25% or more tax on that money. Why are you doing this? Do you like paying the tax instead of spending your own money?

Max up your Trad. 401K and put the 25% tax savings into your Roth IRA. You will get to save and spend more of your money.

KlangFool

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 9:23 pm

KlangFool wrote:
Thu Dec 28, 2017 9:18 pm
Esq123 wrote:
Thu Dec 28, 2017 9:04 pm
KlangFool wrote:
Thu Dec 28, 2017 8:59 pm
Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm


Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
Esq123,

Are you single or married? Do you own a house? My household consist of 4 persons. I have a house. My annual expense is about 60K excluding college expenses.

<< Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.>>

You are paying a lot of taxes by not contributing more to your Trad. 401K account. Do you pay state income tax? At 25% marginal tax rate, you are paying 25% tax on every dollar you do not put into your Trad. 401K account.

<<Saving 15% each year for retirement >>

No, it has nothing to do with saving for retirement. It has to do with deferring tax and keep more of your money in your pocket instead of paying taxes.

<<My salary is around 85k a year and I spend probably 30-35k a year on necessities.>>

Your numbers do not add up. Assuming that you are paying 33% tax in total, the tax ~ 25K. Let's say that you spend 35K, you can save 80K - 35K -25K = 20K per year. You can max up your Trad. 401K.

KlangFool
Right. I’ve been saving more after tax money for short terms goals..
Esq123,

You are paying 25% or more tax on that money. Why are you doing this? Do you like paying the tax instead of spending your own money?

Max up your Trad. 401K and put the 25% tax savings into your Roth IRA. You will get to save and spend more of your money.

KlangFool
Last time I checked you can’t withdraw money from your 401k to pay for an extravagant wedding and honeymoon loll.

kerplunk
Posts: 772
Joined: Sun Apr 17, 2011 9:58 pm

Re: Maxing out retirement accounts

Post by kerplunk » Thu Dec 28, 2017 9:24 pm

I max out my Roth 401(k), Roth IRA, and HSA because I want the option of early retirement. Maybe I will work forever, but the future is unpredictable.

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Thu Dec 28, 2017 9:30 pm

Esq123 wrote:
Thu Dec 28, 2017 9:23 pm

Last time I checked you can’t withdraw money from your 401k to pay for an extravagant wedding and honeymoon loll.
Esq123,

1) Who says so? If you are no longer with your employer, you can rollover your Trad. 401K into an IRA. You can withdraw the money from your IRA any time. You just have to pay 10% penalty plus income tax. And, you could avoid the penalty with some planning.

2) You could withdraw your Roth IRA contribution at any time without paying tax or penalty.

3) By maxing up your Trad. 401K and put your tax savings into Roth IRA, you get to save and spend more of your money.

Read below URL for more details.

https://www.madfientist.com/how-to-acce ... nds-early/

401K and IRA are not retirement accounts. You could access the money before retirement age. They are tax management tools.

KlangFool

InMyDreams
Posts: 350
Joined: Tue Feb 28, 2017 11:35 am

Re: Maxing out retirement accounts

Post by InMyDreams » Thu Dec 28, 2017 9:39 pm

ImUrHuckleberry wrote:
Thu Dec 28, 2017 7:10 pm
If you've been saving 25% - 33% since your early 20's you will likely be in excellent shape regardless.
+1
Bernstein's If You Can recommends putting away 15% per year.

Personally, I was inspired by attending a talk by my then-employer's retirement plan. That year I started with just a small, flat amount. The next year, I decided to put away the equivalent of a tIRA max amount into a 403b (then, $2K). Then I switched to a percentage of my salary. Then I decided to open and max out a Roth IRA. I still don't max out my 401k, but do put in more than my employer matches.

I haven't regretted the amount I've saved, but I do wish I had been wiser with investment allocation. Nonetheless, I feel well-positioned for retirement.

Keep up the good work! And if you want to scrimp and save, you could read Mr. Money Mustache.
Last edited by InMyDreams on Thu Dec 28, 2017 9:42 pm, edited 1 time in total.

cherijoh
Posts: 4932
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: Maxing out retirement accounts

Post by cherijoh » Thu Dec 28, 2017 9:42 pm

When I started working and was eligible for our workplace retirement plan, I started out at 5% - which was the amount of the company match. At that time, the maximum contribution was 15% of salary and inflation was quite a bit higher so raises were also higher than they are today. Every time I got a raise, half of it went towards increasing my 401k percentage until I maxed it out at 15% in a couple of years. Then I started on after tax investing (in the pre Roth IRA days). Today I max out 401k + catch-up contributions + Roth IRA.

Fortunately, I didn't have to worry about paying off college loans. And I have never lived in a high COLA during my working career.

Nonetheless, everyone needs to consider lifestyle creep and the concepts of "needs" vs. "wants". Key areas to watch out for are electronic goodies (latest smart phone, TV, computer) and associated service plans, eating out/entertainment, cars, and of course your home. It is very easy to procrastinate getting into the savings habit BUT the longer you wait the harder it will be. You will also be building up a higher base standard of living that you will need to support in retirement vs. someone who is living well below their means and who has a grasp of what offers them true value.

Edited to Add: I also recommend Bernstein's "If You Can", but I think he recommended a minimum of 15% and that 15% was adequate if you wanted to retire at 65. To retire earlier, you would need to save more.

fulltilt
Posts: 141
Joined: Thu Dec 01, 2011 2:23 pm

Re: Maxing out retirement accounts

Post by fulltilt » Thu Dec 28, 2017 10:02 pm

Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Trying to compare yourself to the people on this forum is unwise and unproductive. Just focus on yourself and your plan. Save what you can in the beginning. Each time you get a raise, invest half. Focus on the process. Focus on what you can control. Income on this forum skews way high and if you compare yourself to people making 2x-3x times your income, you will be needlessly worried.

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 10:08 pm

fulltilt wrote:
Thu Dec 28, 2017 10:02 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Trying to compare yourself to the people on this forum is unwise and unproductive. Just focus on yourself and your plan. Save what you can in the beginning. Each time you get a raise, invest half. Focus on the process. Focus on what you can control. Income on this forum skews way high and if you compare yourself to people making 2x-3x times your income, you will be needlessly worried.
True.

Thank you.

Bacchus01
Posts: 1815
Joined: Mon Dec 24, 2012 9:35 pm

Re: Maxing out retirement accounts

Post by Bacchus01 » Thu Dec 28, 2017 10:14 pm

Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
Are you single? You spend that for one year on one person? I’m not sure I’d say that is necessities

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 10:25 pm

Bacchus01 wrote:
Thu Dec 28, 2017 10:14 pm
Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
Are you single? You spend that for one year on one person? I’m not sure I’d say that is necessities
Lol I’m engaged. With rent, loans, cc bills I spend around $2500 a month. My fiancée makes a good salary so she helps out too.

blueman457
Posts: 387
Joined: Sun Jul 26, 2015 12:19 pm

Re: Maxing out retirement accounts

Post by blueman457 » Thu Dec 28, 2017 10:38 pm

I think you’re fine. I’m in a similar boat, finally starting working a few years ago and while I do contribute the maximum to my pretax retirement accounts, it is harder to save on top of that for down payments because of student loans, car payments, etc....

Just gotta start somewhere keep saving your raises for savings.

Blue Man

DVMResident
Posts: 1254
Joined: Mon Aug 01, 2011 8:15 pm

Re: Maxing out retirement accounts

Post by DVMResident » Thu Dec 28, 2017 10:50 pm

Maxing out retirements accounts should not be a goal per se.

Saving rates should based on goals. Retirement accounts are just an efficient method of saving and investing. The government sets the limit without any consideration of your savings needs.

If a family earns $30k/yr, filling a $18k 401(k) + 2 IRAs a year is too much savings. Conversely, a family earning $300k/yr, the 401(k) and IRAs are not enough room and they should also have taxable accounts.

Set a saving goal first. Then consider which accounts to use.

Jackson12
Posts: 903
Joined: Tue Oct 06, 2015 9:44 pm

Re: Maxing out retirement accounts

Post by Jackson12 » Thu Dec 28, 2017 11:08 pm

Maxed out with an employer's 403b till the guaranteed return dropped from 4 percent to a
potentiak 1%. The contributions were instead allocated to a stock index fund and , as luck would have it, the stock market has been very kind.

We do try to rebalance regularly, at least annually...and more often if we exceed our desired percentages.

We still contribute to the employer plan up to the match.

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Thu Dec 28, 2017 11:20 pm

blueman457 wrote:
Thu Dec 28, 2017 10:38 pm
I think you’re fine. I’m in a similar boat, finally starting working a few years ago and while I do contribute the maximum to my pretax retirement accounts, it is harder to save on top of that for down payments because of student loans, car payments, etc....

Just gotta start somewhere keep saving your raises for savings.

Blue Man
Sweet.

User avatar
meowcat
Posts: 386
Joined: Wed May 09, 2012 5:46 am

Re: Maxing out retirement accounts

Post by meowcat » Fri Dec 29, 2017 11:28 am

KlangFool wrote:
Thu Dec 28, 2017 9:30 pm

401K and IRA are not retirement accounts. You could access the money before retirement age. They are tax management tools.
KlangFool
I have to disagree with you on that. 401(k) and TIRA's are in fact retirement accounts. The early withdrawal penalties are in place for a reason, they're retirement accounts. Same goes for the minimum age of 59 1/2. It's because they're retirement accounts. I would never, in a million years suggest to someone that they take money out of their 401(k) and go ahead and just pay the penalties. Not unless it was a dire emergency.
They are not tools for tax management, that's just one of their benefits.
More people should learn to tell their dollars where to go instead of asking them where they went. | -Roger Babson

GAAP
Posts: 580
Joined: Fri Apr 08, 2016 12:41 pm

Re: Maxing out retirement accounts

Post by GAAP » Fri Dec 29, 2017 11:51 am

From the beginning -- but I was single and moving up from a job that paid a third as much.

Do as much as you can now, increase every year by more than the rate your income increases -- you'll find a way to make it work.

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Fri Dec 29, 2017 11:53 am

meowcat wrote:
Fri Dec 29, 2017 11:28 am
KlangFool wrote:
Thu Dec 28, 2017 9:30 pm

401K and IRA are not retirement accounts. You could access the money before retirement age. They are tax management tools.
KlangFool
I have to disagree with you on that. 401(k) and TIRA's are in fact retirement accounts. The early withdrawal penalties are in place for a reason, they're retirement accounts. Same goes for the minimum age of 59 1/2. It's because they're retirement accounts. I would never, in a million years suggest to someone that they take money out of their 401(k) and go ahead and just pay the penalties. Not unless it was a dire emergency.
They are not tools for tax management, that's just one of their benefits.
meowcat,

<<The early withdrawal penalties are in place for a reason, they're retirement accounts. Same goes for the minimum age of 59 1/2. It's because they're retirement accounts.>>

I could access those accounts without paying the penalty by Roth conversion. So, they are not retirement accounts.

<< I would never, in a million years suggest to someone that they take money out of their 401(k) and go ahead and just pay the penalties. Not unless it was a dire emergency. >>

Why not? If I am taking a break from employment and tour the world, I have zero income. I only have to pay 10% penalty with 0% income tax. It is a good deal. I was deferring the tax at 25%. I still save (25% - 10% = )15% tax in the process. It is a tax management tool.

If I am not in a rush to get the money, I can do the Roth conversion and pay 0% tax in the process. I save 25% tax in the process.


<<They are not tools for tax management, that's just one of their benefits.>>

It is your choice to pay more tax instead of using those accounts for tax management. I prefer to spend my own money instead of paying more taxes.

KlangFool

dharrythomas
Posts: 882
Joined: Tue Jun 19, 2007 4:46 pm

Re: Maxing out retirement accounts

Post by dharrythomas » Fri Dec 29, 2017 12:04 pm

Esq123 wrote:
Thu Dec 28, 2017 8:43 pm
KlangFool wrote:
Thu Dec 28, 2017 8:04 pm
Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
Esq123,

A) You choose to spend first and save later.

B) Some folk chooses to "Pay Yourself First" aka save first and spend later.

The median household income in the USA is about 60K. So, the median family spends about 20K per year. How much do you spend per year?

KlangFool
My salary is around 85k a year and I spend probably 30-35k a year on necessities. I’m in my late 20s. Hoping to hit a 6 figure salary in the next few years. Saving 15% each year for retirement seems more reasonable as others have mentioned... right now I’m just contributing up to my employer match.
ESq123,

If you save 15% of your income from your late 20s you'll be fine and have nothing to be ashamed of or worried about. DW would like to have had a little higher standard of living along the way. It's always a balancing act. Benchmark progress against the Federal Reserve's survey of consumer finances and not against this group.

Good luck.

Harry

CnC
Posts: 537
Joined: Thu May 11, 2017 12:41 pm

Re: Maxing out retirement accounts

Post by CnC » Fri Dec 29, 2017 12:05 pm

Esq123 wrote:
Thu Dec 28, 2017 6:43 pm
Just curious how many of you maxed out retirement accounts when you first began investing. I feel like it’s just not realistic when you first begin with all the bills, loans, and short/ midterm goals.

I suppose each year my income increases more will go toward those retirement accounts.

Let me know your thoughts.

Thanks.
I did year 2 of actual investing. But I started late. I was 30 :oops:


Prior to that all I did was pay off my house and save money.

Luckily I have a pension and we got the company match for my wife and we saved a considerable amount of money in our savings accounts and CD's.

So despite my terribly late start I should still break 25x household expenses by 45 with 75% of typical returns so I'm still doing ok.

KlangFool
Posts: 9966
Joined: Sat Oct 11, 2008 12:35 pm

Re: Maxing out retirement accounts

Post by KlangFool » Fri Dec 29, 2017 12:13 pm

OP,

I max up my 401K when I started working. No, it has nothing to do with my retirement saving. It has to do with tax management. I choose to pay less tax and keep more of my money in my own pocket. A few years later, I moved overseas and worked a few years with substantially lowered pay. I paid the 10% early withdrawal penalty with 0% income tax to get my money out of the 401K. I deferred tax at 25% and pay 10% early withdrawal penalty. I save 15% tax in the process and get to spend more of my money.

KlangFool

getthatmarshmallow
Posts: 205
Joined: Mon Dec 04, 2017 9:43 am

Re: Maxing out retirement accounts

Post by getthatmarshmallow » Fri Dec 29, 2017 2:25 pm

Thinking of it as "maxing out" retirement accounts confuses strategy with tactics, IMO. What you need to determine is what you want to save and what it's for-- that's the strategy. Where you put it -- tax-advantaged accounts, taxable, etc. is a matter of tactics.

So, I'm not maxing out my retirement accounts, because I have access to a 457b and a 403b, and not enough salary to max those out and live the lifestyle I want. But as a household we'll save about 33% of our total income next year, distributed across our various accounts. And as our income grows, I'll fully fund the tax-advantaged accounts before contributing more to taxable accounts. But maxing it out isn't the goal.

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Fri Dec 29, 2017 6:50 pm

Thanks for the feedback all.

Spirit Rider
Posts: 8583
Joined: Fri Mar 02, 2007 2:39 pm

Re: Maxing out retirement accounts

Post by Spirit Rider » Fri Dec 29, 2017 7:25 pm

getthatmarshmallow wrote:
Fri Dec 29, 2017 2:25 pm
Thinking of it as "maxing out" retirement accounts confuses strategy with tactics, IMO. What you need to determine is what you want to save and what it's for-- that's the strategy. Where you put it -- tax-advantaged accounts, taxable, etc. is a matter of tactics.
This concise statement should be a required signature every time someone tirelessly trots out the "max your retirement accounts" mantra.

Esq123
Posts: 40
Joined: Fri Dec 15, 2017 4:15 pm

Re: Maxing out retirement accounts

Post by Esq123 » Fri Dec 29, 2017 8:06 pm

Spirit Rider wrote:
Fri Dec 29, 2017 7:25 pm
getthatmarshmallow wrote:
Fri Dec 29, 2017 2:25 pm
Thinking of it as "maxing out" retirement accounts confuses strategy with tactics, IMO. What you need to determine is what you want to save and what it's for-- that's the strategy. Where you put it -- tax-advantaged accounts, taxable, etc. is a matter of tactics.
This concise statement should be a required signature every time someone tirelessly trots out the "max your retirement accounts" mantra.
Agreed.

User avatar
Garco
Posts: 695
Joined: Wed Jan 23, 2013 2:04 am

Re: Maxing out retirement accounts

Post by Garco » Fri Dec 29, 2017 8:20 pm

My employer made it so easy that I'd have had to be stupid not to max the fund out.

My employer contributed 10% to my 401k, while I was required to "match" with 5% of my gross pay. So ~15% of my annual salary went into the core fund. After ~40 years of such mandatory contributions, to which I began to make supplementary contributions in the later years, meant that I had plenty of money. My basic accumulation at retirement was more than 15 times my gross salary in my last year of employment. And Social Security on top of this. I retired with no debt, two kids through college (one through grad school). One house. One spouse.

Making any kind of reasonable allocation and withdrawal plan would allow me to maintain my standard of living in retirement. And it has. I'm secure.

Post Reply