32 responses

  1. Financial Samurai
    January 19, 2012

    Gotta add those taxable accounts through an extra 20-35% annual savings on top of maxing out the 401K!

    • YFS
      January 19, 2012

      For 2012 we are dumping all our money into our emergency fund in anticipation of having a child. The game plan for 2013 and beyond is to use all non emergency fund cash on real estate and taxable accounts.

  2. PJ
    December 14, 2011

    My company matches half of my 8% contribution in a 401k. Together that's 12% per year. Every raise I get, most or all of the raise goes into the retirement account, instead of to my standard of living. There is a company-funded pension but it is not held by the employee so it is not guaranteed in my mind. Then i contribute to a regular Roth outside the company to the maximum allowed by law (this is allowed on top of a 401k Roth). I am NOT a high earner and live in an expensive state – i live way below my means by not in a spartan fashion and follow "minimalist" and "simple living" websites for new ideas.

    I have friends who work in big Pharma getting 6 figure paychecks, a nice 401k matches, company-funded pensions, and annual raises of $10-20k per year. The actuaries are living high on the hog too. STEM (science, tech, engineering, and math) are nice industries and you need a degree. These folks are not working 60-80 hour workweeks to earn high wages like so many blue collar workers (eletricians, plumbers, ma bell, electric/gas).

    I think there is some truth to financial advisors who say save 20-25% of your pay each year – so many ppl have lousy 401ks and no pensions these days have no alternative but to rely on their own stockpiles. Keep expenses low and put any raises to your retirement accounts.

    • YFS
      December 15, 2011

      PJ great job on investing in your future. You're way ahead of the game. You're absolutely right about people with lousy 401k's I am one of them. Fortunately, like you we live way below our means. We actually live off one income. So, since we have a crappy 401k. Maxing out my wife's 401k and investing in other income streams will have us well off for retirement.

  3. Six Figure Investor
    December 14, 2011

    Just to add more intrigue to this issue, I now have the option of a Roth 401K. This is a relatively new kind of account. Not really sure which type of account to pick, the match to this account would be tax deductible which creates more accounting issues.

    • YFS
      December 14, 2011

      ROTH 401K ALL THE WAY. You can put in 17k after tax and never pay taxes on it again. I personally would jump all over this even though I'm in a high tax bracket.

  4. Niki
    December 14, 2011

    We contribute to a TSP (military/federal 401k equivalent) but as a military member (husband) we don't receive matching contributions. We started a Roth IRA fairly recently in hope of bulking up our retirement savings.

    • YFS
      December 14, 2011

      Great job on starting the ROTH IRA. I'm curious since you do not receive matching contributions and you're eligible for the ROTH IRA. What is your reason for contributing to the TSP prior to maxing out both of your ROTH IRA's?

      • Niki
        December 14, 2011

        Funny that you ask that, because I have been asking myself that question.

        We started contributing to it about 7 years ago and at that time we were not as on top of our financial situation as one should be but I was led to believe that the contributions were matching. I only found out a while ago that they were not. BUT I completely understand why since the military has fantastic retirement benefits. I just never changed our contribution because it's taken out before we even see the paycheck and I thought it was a good thing to save.

        We recently got ourselves out of almost $15k of debt and I wanted to keep contributing to retirement even while in debt.

        So, my answer is I am kind of lazy and maybe I should look into maxing out a Roth with those contributions rather than putting them into a non-matching TSP. Thanks :)

      • YFS
        December 14, 2011

        Roth vs tax deferred retirement accounts (without match) comes down to what you believe your tax bracket will be in the future. Say you're in the 15% bracket now and expect your tax bracket to be 25% at retirement. The Roth makes since. If you're in the 25% bracket and expect our tax bracket to be 15% in retirement the tax deferred plan makes since. Good luck on planning :-). All in all if you can max out both you're way ahead of the game. Also don't forget Roth IRA's are individual accounts so you and your husband can both contribute to two separate Roth's for 5k each

      • Niki
        December 14, 2011

        Thanks for the info. I really have no idea what tax bracket we'll be in.

        We do have separate accounts. I am a huge advocate of the stay-at-home parent having IRAs too.

  5. krantcents
    December 14, 2011

    The participation level in most 401k's is terrible! Savings in general is not what it should be. We need to increase the participation before you condemn it. Although I contribute to a Roth IRA, I do not believe I will be in a higher tax bracket when I retire. I guess I can only hope I will! :)

    • YFS
      December 14, 2011

      The government is trying to increase participation but many employers are foregoing safe harbor matches and simply offering a 401k with no match. This leaves people in a pickle. For example at my job since there is no company match many people do not participate. I'm considered a key employee by definition because of my salary exceeding 110k. Key employees cannot invest more than 2% over the average non-key employee deferral amount. Meaning, if non-key employee's on average invest 2% to their 401k. I can only invest 4%. This isn't going to cut it! for my retirement. Not to mention my 401k investment options are horrible. :-(

  6. Penny
    December 14, 2011

    If I didn't have the option of a 401k at my next job, I would try to max out my IRA and then contribute to a taxable account, probably a combination of stocks/mutual funds and something less risky.

    • YFS
      December 14, 2011

      Good plan. What about bonds? Would you take advantage of the tax favorable municipal bonds?

      • Penny
        December 14, 2011

        You know, it's not a very precise plan for a theoretical situation. :-) I'm in the middle of finals so I don't have time to flesh it out, but I won't have real income for another 5-6 months and when I do I'll have a 401k so after I max out my matching funds I doubt I'll have enough left to fully max out my Roth IRA.

      • YFS
        December 14, 2011

        I hope your 401k is better than mine. My 401k sucks and since they do not match contributions. By not offering a 401k match many non-key employees (people making under 110k) do not invest which directly effects me! I am limited in the amount I can invest since I am considered a key employee. :-(

      • Penny
        December 14, 2011

        It's a reasonably good match. I really can't complain about free money in any amount.

      • YFS
        December 17, 2011

        nice!

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