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Americans Are Putting Billions More Than Usual in Their 401(k)s

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Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#81

Post by Bartweiss »

DoodleBuggy wrote: post #47
callinyouin wrote: post #4

I'm not planning on Social Security being around by the time I'm old enough to tap into it, and I'm also not planning on having any kids to bail me out when I go senile, so yeah I'm putting a lot into my 401k. I think a lot of people my age (turning 30 next week) are feeling the same way, so I wonder if it's younger workers driving this trend.

> "I'm not planning on Social Security being around by the time I'm old enough to tap into it" You need to change that attitude or your complacency will allow politicians to take it from you. The fact is you pay ~16% of your paycheck into social security and medicare, it is designed to be like a pension. It is not an entitlement, it's your money.

"You need to change that attitude or your complacency will allow politicians to take it from you."

I really don't like the glibness of that sentiment, even if the idea is fine. As a voter or constituent, yeah, fight for Social Security, try to maintain it.

But as an investor? Recognize that your personal view has approximately no impact on whether Social Security exists unless you run for high office or devote your life to the topic. Make your best guess and save accordingly.

People shouldn't make their individual choices around the political views they support, because most individuals have virtually no influence on national outcomes.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#82

Post by rpais »

briHass wrote: post #53
sikim wrote: post #20

I wonder what percentage of 401k contributors has an IRA. General rule of thumb is to contribute enough to 401k to get maximum company matching and max out your Roth IRA contribution first. IRA is generally preferred because you can choose your own fund (e.g. Vanguard) and has more flexibility in certain situations. By having both pre-tax (401k) and post-tax (Roth IRA), you would be also diversifying your tax liabili…

One problem with the Roth IRA is the income phase out limits. If you're single, if you AGI is >117K, you can only contribute some percentage of the $5000 allowed for the Roth. If you're >132K, you can't contribute anything. For a married couple, those limits are 184K/194K. Granted, you can reduce your AGI by contributing to a 401K first, which allows you to take $18K off the top. I know this doesn't affect many, but…

You can get around this by contributing to a traditional IRA and then converting it to a Roth. This is easy to do (until law changes) unless you have an existing traditional IRA where you can take a tax hit.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#83

Post by rpais »

40acres wrote: post #76
jeremy_k wrote: post #63

Earlier quoted context omitted.

Everyone here is commenting on the Roth income limits. Look up what a backdoor Roth contribution is. Basically avoid having a tIRA by keeping all your pre-tax money in a 401k and then you can contribute to a Roth IRA every year. The only problem with this is if your 401k has horrible funds. I'm luckily in that my company recently added Vanguard funds to our 401k funds and I switched nearly all of my money to those.

How often would one need to use a backdoor Roth contribution? Seems like something you would need to execute every year.

Yep, you do it every year.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#84

Post by Bartweiss »

justinph wrote: post #42
callinyouin wrote: post #4

I'm not planning on Social Security being around by the time I'm old enough to tap into it, and I'm also not planning on having any kids to bail me out when I go senile, so yeah I'm putting a lot into my 401k. I think a lot of people my age (turning 30 next week) are feeling the same way, so I wonder if it's younger workers driving this trend.

I read this a lot. Why do you expect this to be the case? Social Security may become unable to pay the benefits that you're expecting at some point because the input from workers will not be enough to pay those benefits. But that doesn't mean it will pay nothing. It will just pay less. You'll still get some payments.

Bear in mind that "it goes broke" isn't the only failure mode, and it's certainly not what I consider most likely. Every few years there's another push to privatize Social Security - you don't just have to count on the mathematical solvency of the program but also its political viability.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#85

Post by rch »

fortytw2 wrote: post #54
DoodleBuggy wrote: post #47

Earlier quoted context omitted.

> "I'm not planning on Social Security being around by the time I'm old enough to tap into it" You need to change that attitude or your complacency will allow politicians to take it from you. The fact is you pay ~16% of your paycheck into social security and medicare, it is designed to be like a pension. It is not an entitlement, it's your money.

If it was actually your money, paying into it would be optional.

Not necessarily. If the system morphed into a required savings rate, then it could still be 'yours' without being optional.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#86

Post by Frondo »

leggomylibro wrote: post #23
callinyouin wrote: post #4

I'm not planning on Social Security being around by the time I'm old enough to tap into it, and I'm also not planning on having any kids to bail me out when I go senile, so yeah I'm putting a lot into my 401k. I think a lot of people my age (turning 30 next week) are feeling the same way, so I wonder if it's younger workers driving this trend.

I'm in the same boat; I view my social security "contributions" as a lifestyle tax from the last generation, and I'd opt out of them in a second if I could. Instead, I'm planning my retirement around Roth IRAs and 401k savings. I think this is definitely a common sentiment amongst us youngsters.

I thought that way in my early- to mid-20s.

I read lots of thoughtful articles about how SS was broke, wouldn't last, etc.

As I got a little older, I started reading more about the history of SS, how it's always needed various adjustments over time, how people have always said it's going broke, it's unsustainable, etc.

I realized that, for most of its history, the people who have said those things are actually more likely the ones who'd like it to go away entirely.

While everyone else just makes the changes necessary to keep it going.

After a while, I found I'd move into the "let's just make the changes necessary to keep it going, because it's a good program and has always had its detractors" camp. (which is where I am now.)

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#87

Post by thraway2016 »

wang_li wrote: post #74
JumpCrisscross wrote: post #56

Earlier quoted context omitted.

> It is not an entitlement, it's your money That's not how social security works. Every dollar you pay in flies out to fund promises made in years past. "Your" social security money needs to be earned by our children.

The Social Security Trust fund generally runs a surplus (as recently as 2014 it added $25 billion.) However it's projected that around 2030-2034 the number of recipients will be drawing more than is being paid in. At that point your statement will become more correct than it currently is.

...the SSTF holds exclusively US Treasury notes and bonds as assets.

You're describing a distinction without a difference, as other parts of the USG have already spent the surplus.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#88

Post by garethsprice »

temp246810 wrote: post #35

Even though I'm doing all the right things like maxing out 401k etc., I can't help but feel that I will regret it later. It feels like everyone grew up hearing the same thing (people are poor planners, people go broke in retirement) and now as adults have vowed that will never be them. The problem is that now everyone thinks this way - index funds are on the rise, people are saving into their 401k, I can't help but t…

Far from "everyone" - the majority of Americans are massively undersaving. If you are able to max out your 401k every year and track the market in index funds you'll be far ahead of the vast majority of people at retirement.

The first generation of people who were expected to save privately are yet to retire. 29% of 55 and older have ZERO savings, and the average of those who do is $104k, which is a $310/mo annuity (GAO, 2015). There is a generational crisis brewing.

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#89

Post by idunno246 »

40acres wrote: post #76
jeremy_k wrote: post #63

Earlier quoted context omitted.

Everyone here is commenting on the Roth income limits. Look up what a backdoor Roth contribution is. Basically avoid having a tIRA by keeping all your pre-tax money in a 401k and then you can contribute to a Roth IRA every year. The only problem with this is if your 401k has horrible funds. I'm luckily in that my company recently added Vanguard funds to our 401k funds and I switched nearly all of my money to those.

How often would one need to use a backdoor Roth contribution? Seems like something you would need to execute every year.

yea, you do it every year. its maybe ten more minutes of work than contributing to a just a tIRA, which you're doing every year anyway if you contribute to IRAs. like the above said, the only downside is hiding rolled over money in an expensive 401k or having to pay taxes on it

Re: Americans Are Putting Billions More Than Usual in Their 401(k)s

#90

Post by rch »

jacalata wrote: post #78
fortytw2 wrote: post #54

Earlier quoted context omitted.

If it was actually your money, paying into it would be optional.

Not necessarily. The Australian superannuation program has compulsory contributions but the money goes into an account in your own name.

Interesting - I wasn't aware of this program even as I was writing a similar comment.
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