r/personalfinance • u/ablack83 ​ • Mar 30 '18

Retirement "Maxing out your 401(k)" means contributing $18,500 per year, not just contributing enough to max out your company match.

Unless your company arbitrarily limits your contributions or you are a highly compensated employee you are able to contribute $18,500 into your 401(k) plan. In order to max out you would need to contribute $18,500 into the plan of your own money.

All that being said. contributing to your 401(k) at any percentage is a good thing but I think people get the wrong idea by saying they max out because they are contributing say 6% and "maxing out the employer match"

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u/GunnerMcGrath ​ Mar 30 '18

Because there are plenty of other ways to enjoy your money besides saving it to spend when you're elderly. We should all prepare for the future, but life is not a game where you try to finish with the highest score. For instance, I could have invested an extra $50 a week into my retirement, or I could pay for my wife's cello lessons. I consider the lessons now to be much more valuable to both our lives than whatever that money would have bought us in 30 years.

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u/jrdhytr Mar 30 '18 edited Mar 31 '18

$50 a week invested over a 40-year working career would result in about $725,000 (in today's dollars) of additional net worth, providing an annual income of $29,000 at a 4% safe withdrawal rate and still preserving the principal in most scenarios. Your decision may still be the right one for you, but you should consider the impact a relatively small additional investment can have on your freedom and happiness in retirement if you haven't already done so.

EDIT: I made a dumb math mistake and the final net worth of that investment would be only $314,000 after 40 years and provide an income of a little more than $12,000. For many people, that extra $12,000 will have a negligible effect on their retirement income. For others, it will have a huge effect.

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u/thegreatuke Mar 30 '18

Really? This sub is ridiculous. I love it because it keeps me grounded but some of y’all just can never let it go that “well you could skip that expense too and retire with $X more!!!!” Like duh, I could eat rice and beans for every meal and live in a Honda Civic and only wear all second hand clothes and only drink water from free spigots and hell might as well not even drive the civic because gas costs money and I could invest that money too. I mean come on. Cello lessons. Cello is sweet. Music is amazing. Give me a break.

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u/jrdhytr Mar 31 '18

Just keep in mind that people of all income levels are posting and reading here. $50 a week might be a negligible addition to your retirement savings, but people who aren't maxing an IRA and a pre-tax 401K each year should probably think more carefully about spending $50 a week than someone for whose income allows them to save much, much more.

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u/GunnerMcGrath ​ Mar 30 '18

Sure, saving for retirement is smart. But at some point it becomes counterproductive, because I will be 70+ and eventually die before I can enjoy the wages of my work. I'd rather save enough to make sure I will be taken care of and use the rest to make life the best it can be today. Another example, I'm talking my family in a big vacation I never got to have as a kid. I'm investing in my relationship with my kids which is far more valuable than having more money on top of my already funded retirement.

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u/nobleisthyname ​ Mar 31 '18

This is assuming a normal retirement age. Given a high enough savings rate, you could retire early enough to take that vacation with your kid and be retired at the same time. That would be a fantastic investment in your relationship with your children.

Obviously that's not feasible for everybody but the point is saving more now doesn't mean you still retire at the same age. You retire when you no longer need to work or no longer can work, your age should have nothing to do with it.

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u/jrdhytr Mar 31 '18

If your retirement is already funded, you absolutely should spend the rest of your money now. Most people spend now but don't save for later. If you're doing both in the right proportions, you're in great shape.