Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
401k's growing but woefully inadequate...
Old 05-11-2011, 04:27 PM   #1
Thinks s/he gets paid by the post
DblDoc's Avatar
 
Join Date: Aug 2007
Posts: 1,224
401k's growing but woefully inadequate...

It's frightening how poorly prepared many are for retirement - at any age. 401(k)s grow, but savers are still worried Andrea Coombes' Ways and Means - MarketWatch

Quote:
Looking at people who have contributed continuously for 10 years, the average balance is $191,000, and among those who are 55-years-old or older and have contributed continuously for the past decade, the average balance is $233,800, said Beth McHugh, vice president of market insights for Fidelity.
DD
__________________

__________________
At 54% of FIRE target
DblDoc is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-11-2011, 04:38 PM   #2
Recycles dryer sheets
 
Join Date: Apr 2011
Posts: 106
I will go read the article but 10 years of contributions including more than half of them at the 401k cap of 16,500 did not give me the $191K average noted above...

Go go go starting work in 2001 and investing the last decade...
__________________

__________________
I'm not obsessed with money, I'm obsessed with work! Er, rather the not doing it anymore part...
ChadR is offline   Reply With Quote
Old 05-11-2011, 05:00 PM   #3
Thinks s/he gets paid by the post
Major Tom's Avatar
 
Join Date: Nov 2009
Location: SF East Bay
Posts: 3,129
Although savings into 401(k)'s are probably a reasonable rough gauge, there are also IRA's and taxable savings. Plus some folk help fund their retirement by either selling their principal residence or reverse-mortgaging it.

I do agree though that many people are not properly financially prepared for retirement.
__________________
ER, for all intents and purposes. Part-time income <5% of annual expenditure.
Major Tom is online now   Reply With Quote
Old 05-11-2011, 05:11 PM   #4
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by Major Tom View Post
Although savings into 401(k)'s are probably a reasonable rough gauge, there are also IRA's and taxable savings. Plus some folk help fund their retirement by either selling their principal residence or reverse-mortgaging it.

I do agree though that many people are not properly financially prepared for retirement.
Most people don't have much taxable savings or IRAs as it's a stretch just to do the 401k. Reverse mortgages or selling a home is obviously an issue in this time of falling house prices.

The numbers in the article remind me of the inherent Catch 22 of the dogma that states you should retire on 80% of pre retirement income. To do that you'd have to save an insane amount and get ridiculous returns. Something under 50% might be possible to fund, but a lot of people are going to be looking at SS and a small fraction of their pre retirement income.
__________________
nun is offline   Reply With Quote
Old 05-11-2011, 07:27 PM   #5
Dryer sheet aficionado
 
Join Date: Jan 2007
Location: Lancaster
Posts: 38
I'm actually expecting to go out with ~55 %, but I also will not have a whole lot of expenses I currently handle.
__________________
wmackey is offline   Reply With Quote
Old 05-11-2011, 08:18 PM   #6
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by wmackey View Post
I'm actually expecting to go out with ~55 %, but I also will not have a whole lot of expenses I currently handle.
I live on 60% of my salary, but once the mortgage is paid off I'll only need 33%. As I have a rental property that provides 15% I only need my investments to replace 18% of my salary in ER to maintain my current lifestyle.
__________________
nun is offline   Reply With Quote
Old 05-11-2011, 08:30 PM   #7
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
These numbers are interesting when you also consider the large number of people who don't believe that SS will be around for them. If that's the case the average $50k a year earner would have to have a retirement nest egg of $1M to generate 80% of $50k ie $40k, using the 4% rule. To get $1M they'd need to save $12k every year for 30 years and average 6% return. That's 24% of their salary. Obviously this is a best case as the $12k would be a higher percentage of salary at the beginning of a career.

The issue here is that if they have to save 24% they are living off 76% of salary, so they don't need 80% of salary.
__________________
nun is offline   Reply With Quote
Old 05-11-2011, 09:16 PM   #8
Recycles dryer sheets
 
Join Date: Jan 2011
Posts: 122
Quote:
Originally Posted by nun View Post
These numbers are interesting when you also consider the large number of people who don't believe that SS will be around for them. If that's the case the average $50k a year earner would have to have a retirement nest egg of $1M to generate 80% of $50k ie $40k, using the 4% rule. To get $1M they'd need to save $12k every year for 30 years and average 6% return. That's 24% of their salary. Obviously this is a best case as the $12k would be a higher percentage of salary at the beginning of a career.

The issue here is that if they have to save 24% they are living off 76% of salary, so they don't need 80% of salary.

Don't forget they have to pay taxes out of that 76%, so they are living off less than that....
__________________
LightningDawg is offline   Reply With Quote
Old 05-12-2011, 08:59 AM   #9
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by LightningDawg View Post
Don't forget they have to pay taxes out of that 76%, so they are living off less than that....
Yes taxes would have to come out of the gross amounts I used.

The conclusion from this is that you need to LBYM in a major way to have a hope of saving enough to retire and maintain your lifestyle. If SS stays around the minimum people should be saving is 10% of salary, if it goes away up that to 20% or 25%. Given falling salaries, the inevitability of tax increases and the increase in healthcare, college, and energy costs I don't see America having a happy retirement.
__________________
nun is offline   Reply With Quote
Old 05-12-2011, 09:05 AM   #10
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by LightningDawg View Post
Don't forget they have to pay taxes out of that 76%, so they are living off less than that....
True, though with a progressive income tax the percentage of money paid out in taxes is considerably less than it would be when living on a higher income. I would bet a 24% drop in taxable income would probably cut one's income taxes almost in half, especially if it took them down from (say) the 25% to the 15% federal tax bracket.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-12-2011, 09:18 AM   #11
Full time employment: Posting here.
 
Join Date: Jun 2007
Posts: 567
Highest effective tax rate we paid was 18.92% filing married join dual income on just over $210k in 2008.

Lowest effective tax rate was last year where we paid an effective rate of 6.22% on $45k (married joint single income).

Aside from owning a house in 2008 and not owning one in 2010 (well, not until the end of 2010) and both of us maxing out 401(k) contributions, there were no fancy deductions or loopholes to get us to that number.

Anecdotally, since our spending patterns are about the same (curtailed a bit), it was a lot easier saving for retirement in 2008 than it was in 2010... in fact, it didn't happen at all in 2010.
__________________
Webzter is offline   Reply With Quote
Old 05-12-2011, 09:22 AM   #12
Recycles dryer sheets
 
Join Date: Jul 2010
Posts: 255
Quote:
Originally Posted by ChadR View Post
I will go read the article but 10 years of contributions including more than half of them at the 401k cap of 16,500 did not give me the $191K average noted above...

Go go go starting work in 2001 and investing the last decade...
I've been contributing for almost 11 years and received a 6% match for 4 of the years and I'm not that much higher than the average. Maybe this includes catch up contributions for those over 50?? I guess I should read the article also.
__________________
SunsetSail is offline   Reply With Quote
Old 05-12-2011, 09:29 AM   #13
Full time employment: Posting here.
 
Join Date: Jun 2007
Posts: 567
Quote:
Originally Posted by ChadR View Post
I will go read the article but 10 years of contributions including more than half of them at the 401k cap of 16,500 did not give me the $191K average noted above...
From the article:

Quote:
About two-thirds of the increase in account balances is due to market gains, and one-third is employer and employee contributions, she said.
Which puts the actual employee/employer contributions per year much, much lower.
__________________
Webzter is offline   Reply With Quote
Old 05-12-2011, 09:40 AM   #14
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,835
Quote:
Originally Posted by ziggy29 View Post
True, though with a progressive income tax the percentage of money paid out in taxes is considerably less than it would be when living on a higher income. I would bet a 24% drop in taxable income would probably cut one's income taxes almost in half, especially if it took them down from (say) the 25% to the 15% federal tax bracket.
This is another advantage of LBYM. I paid 16% tax last year as I max out state defined contribution plan, 403b and 457 accounts which significantly reduced my taxable income. In ER I'll be in 15% tax band.
__________________
nun is offline   Reply With Quote
Old 05-12-2011, 09:45 AM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
FinanceDude's Avatar
 
Join Date: Aug 2006
Posts: 12,484
I have seen it firsthand. The worst was a short time when I worked at Chase Bank. We had bank employees with 20-25 years in that were not even doing enough 401K to get a full match!
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)


This Thread is USELESS without pics.........:)
FinanceDude is offline   Reply With Quote
Old 05-12-2011, 12:33 PM   #16
Thinks s/he gets paid by the post
 
Join Date: Aug 2005
Posts: 2,056
I started contributing to my 401k back in the last two weeks of 1997. At the time I was still recovering from an expensive divorce, and still had a lot of bills to pay, but finally decided to start putting a bit into retirement. Initially it was just enough to get the company match (4% and they'd give you 1%), although as my situation improved, I bumped it up slightly. In 1999 I contributed around 11-12%.

By 2004 I was contributing 17%, and mid-year, was able to bump it to 22%. Sold my condo in late 2004, and in early 2005, bumped up my contribution to 25%. I jacked it up again later that year, to 30%, and managed to hit the federal limit, which was $15K back then.

I've been hitting the federal max every year since then, as well. Nowadays I get a 4% match, which is pretty sweet in my opinion. My previous employer gave us 4% whether we contributed or not, so I would just leave my rate at 30%, and then when I hit the max, would just enjoy the extra-big paychecks later on in the year, while still getting the 4% from the company.

With my current employer though, they only match, so I have to fiddle with my contribution rate from time to time, and make sure that I don't hit the limit until the final pay period.
__________________
Andre1969 is offline   Reply With Quote
Old 05-12-2011, 01:18 PM   #17
Thinks s/he gets paid by the post
teejayevans's Avatar
 
Join Date: Sep 2006
Posts: 1,220
Quote:
Originally Posted by LightningDawg View Post
Don't forget they have to pay taxes out of that 76%, so they are living off less than that....
and if you are saving 24% of your salary, you probably don't need to replace 80% of your salary.
TJ
__________________
teejayevans is offline   Reply With Quote
Old 05-12-2011, 05:32 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,812
I'm sure that millions of Americans have lost a lot of ground due to our current financial woes. People who used to be on track to retire at age xx have been unemployed for months and have been drawing down savings instead of building them up.

But, the Fidelity data here isn't very useful. They quote the balance in one retirement account for an individual. Most people have more than one account. They've worked for different employers, they have money in other 401ks, IRA's, 403Bs or whatever. Many 55 year olds have some amount of DB pension. For two income couples, you've got to include two sets of accounts. The Fidelity numbers miss all this.

I'd like to see a study that interviews people applying for SS retirement benefits. The interview would cover the whole range of savings, pensions, home ownership, past expenses (mostly kids), and past incomes. It would be interesting to see real financial pictures for people as they leave the workforce. I'm going to guess that a fairly high percentage of people are positioned to continue their prior lifestyle.
__________________
Independent is offline   Reply With Quote
Old 05-13-2011, 01:13 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,710
Assuming one followed Boogle, and bought S&P 500 index funds your only down about 15% now from the peak before dividends. If one had continued to contribute one would likley be more than even with dollar cost averaging helping on the contributions made in march 2009.
__________________
meierlde is online now   Reply With Quote
Old 05-16-2011, 01:53 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Apr 2007
Posts: 1,304
Quote:
Originally Posted by meierlde View Post
Assuming one followed Boogle, and bought S&P 500 index funds your only down about 15% now from the peak before dividends. I .
? S&P 500 is still down 15%. I'm lik'n my portfolio a lot more now
__________________

__________________
Life is GREAT!
megacorp-firee is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
401k's and IRA's and lawsuits? summer2007 FIRE and Money 6 08-02-2007 02:34 PM
401k's - Protected or not? Life_is_Good FIRE and Money 16 05-24-2007 03:14 PM
Who makes the W/D rules for 401k's JohnDoe FIRE and Money 14 03-24-2007 10:04 PM
Overhaul 401k's??? Daddy Young Dreamers 5 06-28-2004 01:13 PM

 

 
All times are GMT -6. The time now is 05:55 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.