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Retirement Savings

8,278 5,576 September 27, 2017 at 10:37 AM
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So I was reading an article about a 25 year old posting on Reddit about saving for retirement and if it's necessary. A lot of people responded, "yeah, you should max your retirement fund." http://www.marketwatch.com/story/...2017-08-14

What I want to know is how feasible and common is it that someone in their 20s are maxing out their 401k at $18,000/yr. How are they living? I mean despite that OP making $80,000 a year, that's very much a rare example of someone in their 20s making more than a little above minimum wage. I know people who've graduated for years and barely pushing $30,000 a year because of a slumping job market.

Using that person as a sample, if they maxed their 401K, that's leaving them $12,000 gross for the year, after taxes, insurance, rent, utilities, and so on. What exactly can they live on? Save for the future, but starve in the present? I just find it so hard to understand the suggestions from "financial experts".
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#2
Each situation varies, depending on where you work and live, your job field, age, etc.

For someone in their 20's I would suggest contributing to your 401k at least up to company match, than max out IRA, then go back to 401k and contribute as much as possible.

Whether or not that is a reality for most 20 somethings varies. If you have lots of student loan debt, don't make much money, or have other circumstances, then you probably can't max it out.

But someone who is 23 versus 28 can make a big difference as hopefully you continue to earn more as you get older.

12K is plenty to live on if you are saying that is the "fun" money they have to spend. It all depends where you live. 12K in NYC or Cali isn't going to go as far as 12K in Idaho.
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Last edited by heyeaglefn September 27, 2017 at 11:58 AM.
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#3
I have contributed the maximum to my 401(k) since I started working back in 1994 when I was a 20 something.
I agree that one should, at a minimum, figure out a way to contribute up to any employer match. From there you can put your savings in an Roth IRA.

Obviously, if your expenses exceed your income, in order to increase savings you need to decrease expenses or increase income (or do both). However, don't expect "financial experts" to help you all that much if you have nothing to work with. Just keep in mind that starting early in your savings means a bigger nest egg down the road. Whether that means you'll have $10,000, $100,000 or $3,000,0000 -- you will get there sooner, the sooner you start.
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#4
12K is before taxes, and for the sake of the 30K tax bracket, they're going to be taxed about 15%. That leaves them with about 10K, they still need to pay their insurance premium, etc. It's not "fun" money at all. How is the person to live with 10K a year, needing to pay for rent, utilities, food, etc? Let's just say they can find roommates, and split the rent at $500 a month. That's already 60% of that money.

I understand the thought of saving early, but I also am empathizing with those who cannot even save money to go on with their daily routine; nevermind think about what they'll have 40+ years in the future.

Truthfully, when I first heard "max your 401k" I also thought match the amount the employer's match. But it is much more than that. When I first started contributing to a 401K, I did 1% because that was all I could afford with having a lot of school loans and other financial obligations. But now that I can afford to save more, I still can't imagine reaching the suggested amounts these "experts" are telling people to save.
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i thought shopping was addicting but shopping with coupons is my new high Lust
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#5
Whether you are poor because you earn too little, or because you spend too much the advice to max out your 401(k) obviously only applies if you have the ability and willingness to do so.

Some people get their high shopping. Others get their high growing wealth. If you want to invest more, you need to shop less. Smilie
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#6
5 foolproof ways to build wealth
http://www.cnbc.com/id/104733425

I approve of the message. It addressed the issue of being unable to save more, more or less.
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lol, I think in the circumstance I gave the example of, shopping less will not really help. You still need to live and eat. Transportation, whether public or private will cost money. I just feel like people giving advice on these finances are out of reach of today's reality. Sure, maxing 401K in the 80s and 90s might've been easier, but was college also $40K a year to attend? Rent $1,200 a month. Gas $2.60 per gallon, milk $3.30 per gallon, etc.?

I'm here to start a conversation because I really want to know if these people giving advice are actually living like they are 20-30 years old or someone who is nearly retiring and making 6 figures saying "oh yeah, just max that 401K." As anything, it's always easier said, than done.
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Last edited by noungning September 28, 2017 at 06:53 AM.
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#8
At the very least, participate to full company match, which for most is going to be < 5%, so it shouldn't be a huge burden.

The problem with generalizing this is that there are far too many variables to take into account - where you live, how much you earn, what other necessary expenses you have, etc.

As for me, I've been maxing it out (ironically) since about the 2008 recession - i was in my late 20's then, married with a kid on the way. DW is a teacher and in CT is on a pension, but she still contributes to a 403b (401k equiv for public employees basically), although not maxing.
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Quote from noungning
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lol, I think in the circumstance I gave the example of, shopping less will not really help. You still need to live and eat. Transportation, whether public or private will cost money. I just feel like people giving advice on these finances are out of reach of today's reality. Sure, maxing 401K in the 80s and 90s might've been easier, but was college also $40K a year to attend? Rent $1,200 a month. Gas $2.60 per gallon, milk $3.30 per gallon, etc.?

I'm here to start a conversation because I really want to know if these people giving advice are actually living like they are 20-30 years old or someone who is nearly retiring and making 6 figures saying "oh yeah, just max that 401K." As anything, it's always easier said, than done.
Any financial advice must be tailored to your individual situation. You can't expect someone who spits out a general "best tips to follow" article to create something tailored to everybody's individual situation.

Have an emergency fund; Invest as much as you can afford to lose, as early as you can, as often as you can, in a diversified portfolio, probably mutual fund if you lack a brokerage account, or an ETF if you have one.

Take as much advantage as you can of employer matches and of tax advantaged space. If you have enough to "max out", by all means do so.
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#10
I seriously doubt somebody making 30k/yr is going to be able to max out their 401k contributions. However, at any age and income it is prudent to save for retirement. Many in their 20s simply do not contribute because they assume a few thousand per year won't make any difference in the long run. However, saving even $1,000 when you are 25 is far more valuable than saving $5k when you are 55. At the very least you should try to contribute whatever percentage of your contributions are matched by your employer; that's free money that far too many people leave on the table in the early years of employment. In my personal experience, I always followed the rule of "pay yourself first". By that I mean that if you are living within your means, continue to live at that level of spending even as your salary increases, upping your spending on discretionary items, housing upgrades, cars, etc ONLY after you have increased your savings. Even if you start at 30k/yr, you should be able to put away the 3-5 percent that your employer matches, and hopefully some more on top of that. As your income goes up, be sure to increase the amount you save before you make any other changes to your lifestyle.
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#11
It's been quite a while so I'm not sure how good my memory is but it seems to me the general rule of thumb back in my early working years was to save at least 10% of your income for retirement.

Or was that how much you were supposed to give the church? Scratchchin

Of course back then for me starting at minimum wage that would have been a little over $13 a week going into an IRA. laugh out loud Kind of funny, but then again had I started even with that small amount back then and stuck even to just the 10% I bet it would be a tidy sum today compared to what I have now after waiting far too long to save for retirement.
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I like what she said, not what it means.
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OP I am a millennial and honestly in the end of the day it just depends how much you spend. It is extremely hard to make money now I invest my own way and its worked well, but at the same time I don't live a flashy life. I got the needs I use I have an old car, have my phone, pay by bills and got my home. I don't splur and enjoy life like a wealthy guy because I just don't have that type of income. I do indeed enjoy an ok life.

We all have different incomes different expenses its all up to you how you do math. I have friends that drive nice sports cars, but rent they just love to live the wild life. I would love to also own a sports car, but at my income it would really slow me down on my goals. Not everyone can max out their 401k so we all pitch in what we can. We can try to get a better job sometimes you get lucky sometimes you just don't. I love to go eat in nice restaurants, but its pricey so once in a while I do and the majority of the time I cook at home.

The key I would say as a lot say start young, but enjoy be moderate. Don't be saving it all and not enjoying it, but also don't be spending it all and live in debt. In the end of the day I do agree OP with you lifes just gotten so much harder now everything is just much more expensive gasoline her just got to be $3.00 bucks thanks to our dumb politicians in my state. Prices keep sky rocketing and sometimes income cant just adjust to your living means. Anyone making a 6 digit salary will have more to work with than someone that makes half. All I can tell you OP is just try to make your life easier. Having a roommate is a big plus just someone you can trust so you guys can go halfers on rent etc.

Just to mention one last thing you can be a gambler a lot of people made tons of money in the bit coin stuff of what I hear. Some start a business and succeed. You can invest int something that can double, triple, quadruple hell 10X fold in profits, but it can come at a risk where you can also lose it all.
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Last edited by gpister November 4, 2017 at 05:27 PM.
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#13
Just to clarify a huge point that most people get incorrect. Most people say "I max out my 401k" when 99.9999999999% of the time they really mean, "They are meeting the match of their employer". The two scenarios are not even remotely close to the same thing.

So do people in their twenties MAX their 401k accounts? I have yet to see a single one and I've seen an awful lot.

One thing people miscalculate when they talk raw numbers on paper, is that they throw out an income higher than theirs and say, "If I made that, I could max out my 401k and get way ahead". The one problem and almost always (99.999999%) constant is that when you make more money, you spend more money. It's almost a given fact.

Meet your employers match, then strive for 15% income investment into retirement. Don't stop there, find more ways to save for your future. That doesn't mean don't spend anything now, it just means proportionally grow your saving with your spending as you find ways to earn more or save on expenses.

One of the biggest points that is overlooked when you are young and have little to put towards retirement is that the extra years of compounding goes a long way. Starting young is one of the biggest advantages one can have in the retirement world. Not only does it help returns that start compounding but it trains you to keep going.

Last bit of advice; don't settle for low wages. You can earn more if you really want it. But you can't just want the money, you have to learn, earn, and sacrifice. Money doesn't just come to you, you have to go get it.
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#14
Quote from eekthecat
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Just to clarify a huge point that most people get incorrect. Most people say "I max out my 401k" when 99.9999999999% of the time they really mean, "They are meeting the match of their employer". The two scenarios are not even remotely close to the same thing.

So do people in their twenties MAX their 401k accounts? I have yet to see a single one and I've seen an awful lot.
I maxed out my 401(k) every year since I turned 26. To date, I have contributed $553,980 to the plan (nearly half of which are profit sharing contributions, so that I have contributed a total of $260,000 in addition to the annual maximum. For example, this year, I will contribute 18,000 + 25,000.

For many years the account was not worth more than my contributions and then, finally, the markets took off and now I have 1.3 million in the plan. Overall I am glad I stuck with it even through the years and years of going nowhere.
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Shamelessly pulled from the Mr. Money Mustache forums, but its what I follow. Currently somewhere in between 2 and 3, as I lowered my health plan but put the difference into an HSA. I'm mainly doing that because of my toddler and playing it safe for a year. Might pull that out next time we switch benefits, or maybe mid-year (forget if I can do that), to pay down on my student loans, but they're <6%.

WHAT [mrmoneymustache.com]
0. Establish an emergency fund to your satisfaction
1. Contribute to your 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund a mega backdoor Roth if applicable.
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.
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