You know the old saying: “buy low, sell high”? Contributing during a downturn is buying low.
Reminds me of a conversation I had with a coworker about 20 years ago:
Him: “Oh no! The market is tanking! My 401K is losing value!”
Me: “Mine too. This is a good thing.”
Him: “Good?”
Me: “Yes, it means stocks are at a discount. This is the time you want to buy.”
(Works best when you’re young, though.)
Don’t use them. Most have products to sell - a few work hourly, but the hourly rate is pretty steep for some really basic advice. Invest in a Vanguard or Fidelity or other “low fee” index fund regularly (the same small amount every month) and hold it. Ask questions on a message board like this - or better yet, Bogleheads. Spend two hours once a month at a library reading Kiplinger and Money. Be a penny pincher in your day to day life so you can save. Save outside of investments so you don’t need car loans and can put a roof on the house when you need to. Live BENEATH your means.
Oh, and that’s how we did it. I started saving in a 401k when I was 21. My husband slightly later. We also saved in an independent investment account that I now look at as retirement funds. When I had my mental break, our income dropped and I (of course) stopped putting money aside, but we’d been saving at such a high rate that neither of our kids needed loans for college and we have “enough” for a comfortable, if not luxurious, retirement.
The rule of thumb I use is that you want to be able to pull 3% out of your funds every year to live on. Leave the rest in to grow. Some years the market will be down and you’ll have much less in, but most years you’ll end up covering inflation. So if you save $1m, you have $30k in todays dollars that has an adjustment for inflation built in - plus whatever you get from Social Security/pensions/etc.
Also, plan an “ease in” retirement. You may need to work in the early “retirement” years, but it doesn’t need to be the 40 hour a week job from hell you have now. I’ve been bookkeeping part time.
Just noticed this.
Employers do NOT “have to” match contributions. They can - and most do, to some extent, though it varies by employer.
Mine recently quit doing so (though they are contributing money to a separate, non-401(k) fund). My husband’s matches but only a tiny amount (and also contributes to a separate non-401(k) fund).
I’m vague on the tax implications to the employer for contributing. I know that the contributions are not subject to Social Security taxes, as they would be if the employer simply bumped up your wages. And of course if you leave before you’re vested in the employer’s contribution, the company gets that money back.
Just another question: If someone is hard-off financially, how much should they still sock away into their 401k or IRA in their 30s? I’m sure the consensus is still, “something is better than nothing,” but would it be like 5% or 10%?
Just asking for everyone’s IMHO.
That’s true - I overly simplified. Employers are heavily incentivized to provide 401k plans that they contribute a match. Those incentives are through a series of IRS regulations that are too complicated to be of use in a general overview conversation like this. Googling “safe harbor 401k” would be a good place to start for anyone curious.
That’s a highly variable question that involves debt level, income needs, etc. It’s always hard to recommend not contributing enough to capture any match - but there are times when it might be necessary.
Our advice to our just starting out doesn’t make a lot of money oldest son was “capture the match” - and “come to us if you think you can’t pay bills if you capture the match” - that’s really situational, but I’d rather skip vacations and help my kids save (and them get the match from their employers), but we are lucky that we are in a spot to do so.
Interesting. I was not familiar with that term. It might be what my husband’s former employer was setting up; a very small company (< 20 employees) owned by a single person. She set up the 401(k), and per its rules there was matching up to 50% - with no cap at all.
We had inherited a chunk of money from my mother, and were maxing out our contributions at both our jobs. My husband asked his boss if she’d like him to lower his contributions, because of that insane matching, and she said basically “no, the more you all contribute, the more I can”.
As noted, far beyond the scope of this thread, and I fully admit I do not know all the details of how these plans work from an employer standpoint, but I learned something today, thanks!
I would agree.
My daughter works part time. She has some health issues that make it tough to work more than that. As a result, we are subsidizing her rent, and she has Medicaid and SNAP. She could easily put aside 10% of her income into a Roth IRA because of all that, but simply does not do so. If we were not helping with her rent, she would not be able to.
We don’t know if she has a 401(k) available at her job - and she refuses to find out (argh!!!).
She actually does have a couple thousand in Roth IRAs; I made her save 10% when she was still living at home, and a year or so back I dragged her to her credit union and made her contribute money right then. But she won’t keep up with it. This is all due to her disabilities (mental health-related), not her budget.
As far as capturing the match: 6% of your income seems to be pretty typical in terms of maxing it out. When my employer was only doing the 401(k) (as opposed to a separate pension plan), 6% got me 1:1 matching. Before that, the 6% got me 1:2 matching (so it got me another 3%). We contributed more, of course, but that got us the maximum from the job.
I said earlier that for a short time, my husband was able to contribute a LOT more and got 1:2 matching, so he was getting something like another 10-11% from his job. That’s essentially unheard-of, however. And we could not have put that aside if we had not received an inheritance.
Bottom line: anything (even 1%) is better than nothing. And DO NOT WITHDRAW IT if you leave the job. Far too many people do. Then they have taxes and penalties, and the money is gone. If the plan makes you take it (because your balance is too low), then put it in an IRA.
As much as possible. Sure, that seems like the obvious answer, but let’s take a closer look.
Two scenarios, Joe making $50K per year saving 5%, and Sam making the same but saving 20%. Assume that each spends their remaining amount, so Joe spends $47,500 on expenses, but Sam can live on $40,000.
Using Compound Interest Calculator - NerdWallet and assuming annual contributions of $2,500 for Joe and $10,000 for Sam, 30 years of growth at 6% return compounded monthly, after 30 years Joe has $203,581, and Sam has $814,324. No surprise here, Sam invested 4 times what Joe did, and has 4 times as much in savings.
But Joe needs to spend $47,500 per year to maintain his lifestyle. His $203,581 will last him only 4 years and 3 months. Joe is in trouble. On the other hand, Sam only needs $40,000 per year, and he has a bigger pile of savings to draw from. His $814,324 will last 20 years 4 months.
It’s such an obvious situation that it shouldn’t be a surprise, but cutting expenses and savings as much as possible is the best way to have enough for retirement. Tougher if you are hard off financially, but the math is the math.
And its hard to say it, but participating in the gig economy if you need to - my son Door Dashes on weekends so that he can both save, play golf, and avoid asking us for money. Not a ton, but enough to get some golf in.
When I was in my thirties, I was stony broke and doing good to sock a little away in a savings account to cover the next car repair. In my forties, I got the first job that matched my degree and was able to enter the max amount allowed per month. Later, I bought a house, and lowered the monthly amount to make room for the mortgage.
I never looked at it as a % of my salary, either gross or net. It was: putting in the max allowed still leaves me more than I’m used to spending. Then it was: I need to keep back $X a month for the mortgage. Now I’m back to putting in the max amount.
This is a good point - not necessarily gig work, but doing SOMETHING to bring in a little spare cash when you retire. Someone 70 years old might not be up for doing DoorDash, but something that would allow for whatever physical limitations you have.
My father-in-law taught a couple of classes for several years.
I’ve seriously considered trying for a work-from-home phone support job when the time comes; not something I’d have ever thought of doing, until a couple years ago where it did it short-term between long-term projects - and found I was actually decent at it.
My husband has some ideas for part-time consulting gigs; I’ve also encouraged him to look into teaching part-time at a community college. It’s not a crazy idea; he’s got some slightly unusual skills, and he has taught before (well, labs, when he was in grad school).
For someone living in an expensive area, moving to a less-expensive area might be an option. If you’re in LA, move to Needles, or whatever! (when I joke about moving north for retirement, it’s not JUST because they still have winter there). It’s a big part of why my inlaws moved from a NY suburb to Florida (as I’ve occasionally commented; when we were selling their condo, I realized that if we lived there, we could have afforded to retire right then).
Obviously, moving poses its own logistical nightmares, especially if you’re going some place where you have no family or support system, and if you’re already somewhere affordable, it’s hard to lower your expenses by moving.
Sorry. Ain’t never gonna happen. 
Luckily, I’m in a position where it’s not needed.
Oof. Me and co-worker were literally just debating today whether Needles or Boron, CA were worse shitholes to live. Boron won for sheer bleakness (air museum aside), but an average of 1/3 of the year where it hits over 100 degrees is a mighty big strike against poor Needles. I’m pretty sure it is the hottest place on a given day that I’ve ever experienced in my life. One year they had an international record of 115 degree F rain.
I found this a very interesting thread. I take it a 401K is similar to superannuation in Australia except the employer paid amount isn’t guaranteed.
My general advice would be that, as income tends to increase as you get older (generally if you’re in a skilled occupation) to focus mostly on paying off your house when young then as your income increases, resist the temptation to buy toys you don’t need and push money into the Super/401K account and let the compound interest work it’s magic.
Investment options are really worth reviewing. I lost around 40% of my super in the crash of 2008 but (after a lot of swearing) didn’t panic and stayed the course and retired 18 months ago with enough to see me out comfortably.
One thing not mentioned about where to retire to is that you should think about how good the medical facilities are. I’m 10 minutes away from my doctor, and that is a big help. In the Bay Area I’m close to specialists and some really good hospitals. Living two hours away from a decent hospital is not a good idea. You will need it sometime. Telemedicine only goes so far.
I personally don’t plan to ever fully retire in the sense that I can’t imagine I will ever stop earning income from enjoyable pursuits.
That said, I amassed six figures in a 401(k) from a low-wage hourly job in about 7 years. The company match was not great, but worth doing that amount at minimum. Not retireable, but I plan to keep going and even if I don’t retire-retire I have a good 20 years before I file for SS and start drawing from the 401(k). I’m not really worried about it at all and I’ve never really been employed in anything but hourly jobs and I saved nothing until my late 30s. Paying my bills and eating the way I want has been a struggle at times but I look at the tax-deferred benefits deducted from my paycheck as money that is gone and I will never see it. So it’s sort of out of sight out of mind. You just force yourself to save something off the top and it doesn’t factor into your budgeting. A retirement plan may be a scam if it’s in company stock or something you can’t control, but most plans let you invest in funds. I use Target Date funds. I think I’m in Vanguard 2045 or something like that.