My 401K........how much to invest yearly?

[OneOfTheseDays]

I've seen a lot of conflicting advice on managing one's 401k, some people advocate maxing out your contributions while others say to simply do the maximum that your company will match. My company will match the first 3% of my contributions. Right now my 401k is set to deduct 3% from my payroll annually for annual payments of ~$2100 to my 401k. I could definitely put in more than this since I'm single and have very little expenses at the moment.

Should I go all out and do 50% or something more conservative like say 15%. I'd like to retire when I'm 70-75 if that helps.

 

[vi edit]

General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

 

[Ns1]

not sure, but def. max out the company match.

or else.


i'm going to cut you up into little pieces.

 

[Josh123]

I'm 23 and only put in 5%. The company matches 3% and I think half the other 2% if I remember correctly.

 

[Canun]

I put in 10%, which the company matches fully the first 5%, then does half on the next 5%. It is free money.

 

[Xavier434]

Put in what your company will match.

 

[RaiderJ]

I'm not sure why anyone hasn't mentioned going for the company match - cause it's like free money and stuff.

 

[Savij]

If you don't put in at least the company match then you are an idiot. Past that, put into your 401k until it hurts.

 

[LS20]

at the very least what the company will match
then atleast that much to the same 401k... or a different account

but there are people who advocate 15% 401k, and then some more here, and then some more there... those crazy ascetics

 

[grohl]

I have a new option this year to contribute to a Roth 401k. Now, I know all about Roth IRA and I know that pretax contributions on 401k will save me money - now. The question is, should I pay more now (Roth 401k) and have a larger paycheck or pay it later (taxed on distributions of traditional 401k)?

 

[dullard]

401Ks tend to have limited options and they tend to have higher expenses. Thus, you don't want much of your money in a 401K. But you also don't want to give up free money from your company.

Thus, take all of the free money from your employer. Invest in the 401k up to the company match.

Then, since that isn't likely going to be enough for retirement, invest more in a separate account. Things get a bit confusing here on which type of account to use: IRA, Roth IRA, etc. And usually the tax "math" people use in their arguments (even professionals) is incorrect and far off the true math. But, you still are better off with one of those options than by investing more in the 401K due to the better selection of funds and much lower fees.

As for how much to invest, I would invest all that you can WHILE still being happy with your life. Don't live like a pauper in hopes that you MIGHT live to be 95 and be wealthy then. When you are 95, you won't enjoy money like you will now.

 

[OneOfTheseDays]

Dullard, can you summarize the benefits of having a Roth IRA account? I hear that if you start investing young (early 20's and maxing out your contributions each year) that by the time you retire you are guaranteed at least 1 million dollars?

 

[vi edit]

And to answer the original question - you really should be trying to sock away 15%-20% of your gross pay annually to maintain a similar standard of living once you retire.

 

[alien42]

Originally posted by: Xavier434
Put in what your company will match.

 

[Gunslinger08]

What really bothers me about 401k is not even knowing if I'll live long enough to collect my money. I'm going to be pissed if I die and have boatloads of cash sitting in retirement accounts that I could have used to live a better (short) life.

 

[AmpedSilence]

As much as you can afford, without living terribly. minimum amount being the company match level.

 

[tfinch2]

Originally posted by: joshsquall
What really bothers me about 401k is not even knowing if I'll live long enough to collect my money. I'm going to be pissed if I die and have boatloads of cash sitting in retirement accounts that I could have used to live a better (short) life.

How can you be pissed? You'll be dead?

 

[dullard]

Originally posted by: OneOfTheseDays
Dullard, can you summarize the benefits of having a Roth IRA account? I hear that if you start investing young (early 20's and maxing out your contributions each year) that by the time you retire you are guaranteed at least 1 million dollars?

The Roth IRA is post-tax contributions. But you don't pay taxes when you withdraw it. The MAIN advantage of a Roth IRA is that it gives more flexibility than a traditional IRA. After retirement age you can get your money any way, shape, or form. You can take out a lot or you can let it sit and grow. The traditional IRA has strict rules about when and how much you can withdraw.

The other advantage of a Roth IRA is if tax rates go up, you are protected. You can pay low taxes now when you are earning less (lower tax bracket) and paying less (ie recent tax cut in the last few years). Then if tax rates later soar (Lets pretend social security/medicare problems force the goverment to raise taxes) you don't pay the higher taxes.

There is no guaranteed retirement amount with most forms of investment. Put all your retirement eggs in one basket and you could lose it all. The chance of that happening is slim though if you use multiple baskets. If you invest the maximum amount in the Roth IRA each year, you'll probably end up putting nearly $1M into it of your own money. Thus, even if your money earns nothing all that time, you will likely have $1M left when you retire. Of course, $1M in 50 years isn't going to be worth much. If the market grows though, you could do far better than $1M.

 

[vi edit]

Originally posted by: OneOfTheseDays
Dullard, can you summarize the benefits of having a Roth IRA account? I hear that if you start investing young (early 20's and maxing out your contributions each year) that by the time you retire you are guaranteed at least 1 million dollars?

There's no such thing as a guaranteed return. CD's being a bit of an exception. But assuming annual contributions and estimated returns based on historical performance of the stockmarket, somebody maxing out their IRA's each year could easily have several million in their IRA account. Just keep in mind that it is a million in today's dollars. With inflation figured over 40 years time your buying power with that million+ will be much, much lower than it is now.

The major advantage of a Roth over a Traditional IRA is that the Roth is all after-tax money. You pay for it out of your own pocket. But when you go to cash out you don't pay a dime of taxes on it. If you are pulling out $50,000 a year in distributions, you get all $50,000 of that.

With a traditional IRA, you are paying pre-tax. It reduces your taxible income right now and saves you taxes on your income. But, in 40 years when you go to withdrawal, you pay taxes on that earned income.

Depending on current tax brackets and future tax brackets, the difference you pay now vs. then could be huge. But as Dullard said, the math is pretty difficult and even experts can't agree.

Outside of that, another advantage of the Roth is that you can pull out the principal contributions at any time without penalty. If you have a bad run of luck, you can pull your money out and use it. Not encouraged, but you can do it. With a traditional you'll be taxed on that withdrawal since it was pre-tax money and you'll pay a penalty. Also with a Roth, you aren't required to take distributions once you hit 70.5. You can let it keep piling up. That can be a significant amount of money by that point in your life and you could go from being worth 2 million when you are 70 to being worth 4 million by the time you are 80. That's more money you save with the Roth.

 

[sjwaste]

Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

EDIT: I'm a moron, I read your post wrong. You're right, max the 401k match, then Roth, then remainder into 401k.

I'll QFT myself below, as my punishment:

This is backwards in the OP's case (where I'll assume at 23, he's in a lower tax bracket than he will be at retirement). Max out Roth IRA first, since the disbursements are tax free at retirement, then 401k since the contributions are pre-tax, but the disbursements are taxed at whatever bracket you fall in during retirement.

As to the OP's question, put in as much as you can afford now. Max the Roth (I opened one with Fidelity, great service, and in addition to their funds, lots of solid no transaction fee funds), then put as much into the 401k as you can.

Compound interest is pretty awesome, so start early.

 

[vi edit]

Originally posted by: sjwaste

Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

EDIT: I'm a moron, I read your post wrong. You're right, max the 401k match, then Roth, then remainder into 401k.

I'll QFT myself below, as my punishment:

This is backwards in the OP's case (where I'll assume at 23, he's in a lower tax bracket than he will be at retirement). Max out Roth IRA first, since the disbursements are tax free at retirement, then 401k since the contributions are pre-tax, but the disbursements are taxed at whatever bracket you fall in during retirement.

As to the OP's question, put in as much as you can afford now. Max the Roth (I opened one with Fidelity, great service, and in addition to their funds, lots of solid no transaction fee funds), then put as much into the 401k as you can.

Compound interest is pretty awesome, so start early.

Read what I said. I said max out his MATCH. Get your free money. Then start maxing out your Roth.

Just saw your edit. :thumbsup:

 

[LS20]

Originally posted by: AmpedSilence
As much as you can afford, without living terribly. minimum amount being the company match level.

i would say, like dullard, as much as you can afford... without losing FUN... while youre YOUNG

Originally posted by: vi_edit
And to answer the original question - you really should be trying to sock away 15%-20% of your gross pay annually to maintain a similar standard of living once you retire.

you probably wont drink 4 times a week at 60 years old
dont need to go to las vegas
your houses and sports cars should have been paid for
etc...

 

[vi edit]

Originally posted by: LS20

Originally posted by: AmpedSilence
As much as you can afford, without living terribly. minimum amount being the company match level.

i would say, like dullard, as much as you can afford... without losing FUN... while youre YOUNG

Originally posted by: vi_edit
And to answer the original question - you really should be trying to sock away 15%-20% of your gross pay annually to maintain a similar standard of living once you retire.

you probably wont drink 4 times a week at 60 years old
dont need to go to las vegas
your houses and sports cars should have been paid for
etc...

Your health and medicine insurance premiums will never be as low as they are right now. Your property taxes will probably never be as low as they are right now. You might have a second home in Arizona or Texas that you are paying a mortgage on. You have grandkids to spoil. Ect.

 

[tomt4535]

Right now I put in 3% and my company matches up to 6%. Im changing that soon though to 6% so they will match everything. Im 20 years old so Im not too worried about retirement yet.

 

[JEDI]

Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

1) max out 401k match
2) pay off your non tax deductible debts (ie: credit cards, car loans)
3) then have 6months of expenses saved up in bank acct for emergencies
4) THEN max out Roth
5) then max out 401k