Early Retirement & Financial Independence Community

Early Retirement & Financial Independence Community (https://www.early-retirement.org/forums/)
-   FIRE and Money (https://www.early-retirement.org/forums/f28/)
-   -   How have we saved so much (https://www.early-retirement.org/forums/f28/how-have-we-saved-so-much-108968.html)

firewhen 04-22-2021 04:17 AM

How have we saved so much
 
There have been recent threads with this theme, and my 401k has hit $2.5M so I decided to estimate how much is from my contributions and how much from growth. I already know that the employer match portion is worth about $500k so that leaves $2M. I did some digging, and if anyone contributed the maximum including the catch up the past 35 years that would be about $570k. I am not old enough to have been eligible for the 50+ going back to 2002 and not sure I contributed the max in the early years, so I may have not even contributed $500k, but with the power of compounding and amazing bull market returns, that is now worth $2M. One day I will try to estimate this for our whole portfolio, how much was actual initial savings and how much from growth, but interesting with the 401k less than 25% of the current value was actually contributed by me.


Year Limit 50+ Catchup

2021 19,500 6,500
2020 19,500 6,500
2019 19,000 6,000
2018 18,500 6,000
2017 18,000 6,000
2016 18,000 6,000
2015 18,000 6,000
2014 17,500 5,500
2013 17,500 5,500
2012 17,000 5,500
2011 16,500 5,500
2010 16,500 5,500
2009 16,500 5,500
2008 15,500 5,000
2007 15,500 5,000
2006 15,000 5,000
2005 14,000 4,000
2004 13,000 3,000
2003 12,000 2,000
2002 11,000 1,000
2001 10,500 101,000
2000 10,500
1999 10,000
1998 10,000
1997 9,500
1996 9,500
1995 9,240
1994 9,240
1993 8,994
1992 8,728
1991 8,475
1990 7,979
1989 7,627
1988 7,313
1987 7,000
1986 7,000
469,596

Winemaker 04-22-2021 04:31 AM

Our numbers are similar, however I started in 1981, got married in late 1983, retired in late 2014.

Only my contributions were matched, and were dollar for dollar,for 6% of my salary.

Montecfo 04-22-2021 05:36 AM

it's interesting to look at. I would be curious to look back and figure out when I began maxing out my 401k.

I do know that the last year that I got a company match of any sort was 1996. I retired in 2019. Probably could have shaved some time off if I had company matches of any sort in recent years.

MrLoco 04-22-2021 06:28 AM

Good job on saving as much as you have.

Just beware that your 401k ( assuming none is a Roth 401k) is a ticking tax time bomb in later years.

I fear many of us will be in higher tax brackets, perhaps much higher, in retirement, when one factors in pensions, SS, dividend income, and RMD's at age 72. This will lead to higher Medicare premiums , Medicare surtax on investment income, etc. Granted first world problems but still something to consider.

Love This Community 04-22-2021 06:52 AM

Gods way to look at the growth. In my opinion, compounding effect of employer contributions should not be discounted.

street 04-22-2021 06:56 AM

Quote:

Originally Posted by MrLoco (Post 2595967)
Good job on saving as much as you have.

Just beware that your 401k ( assuming none is a Roth 401k) is a ticking tax time bomb in later years.

I fear many of us will be in higher tax brackets, perhaps much higher, in retirement, when one factors in pensions, SS, dividend income, and RMD's at age 72. This will lead to higher Medicare premiums , Medicare surtax on investment income, etc. Granted first world problems but still something to consider.



Great job to OP!

I also fear the higher tax bracket status, that comes with RMD's and the higher premiums.

TheWizard 04-22-2021 07:18 AM

Quote:

Originally Posted by street (Post 2595981)
[/B]
Great job to OP!

I also fear the higher tax bracket status, that comes with RMD's and the higher premiums.

The "tax bracket" isn't exactly the issue.
I'm in the 24% Federal tax bracket for the past few years of retirement, compared to the 28% bracket my last few years of full-time employment.

But during eight years of retirement thus far, both my AGI and my total tax owed have generally increased year by year, exceeding the numbers from my latter employment years.
Much of the reason is the recent SALT deduction limit.

Anyhow, due to decent planning, I won't have any tax bomb when I start RMDs next year...

Bigdawg 04-22-2021 07:19 AM

Quote:

Originally Posted by firewhen (Post 2595932)
I already know that the employer match portion is worth about $500k so that leaves $2M.


469,596

How could the company match be $500k when you didn't contribute 500k? Or does the word "about" infer $469,596.00?

BTW, good job on investing long term and watching that compounding.

teetee 04-22-2021 07:22 AM

Quote:

Originally Posted by street (Post 2595981)
[/B]
Great job to OP!

I also fear the higher tax bracket status, that comes with RMD's and the higher premiums.

If your other taxable income during retirement (SS and pension) is huge, which is predictable, then converting 401k / tIRA to Roth to avoid RMDs before 72 should help lowering the tax liability.

street 04-22-2021 07:49 AM

^ true! I'm trying to juggle ACA requirements for a low premium also. Once 65 I should have some more leverage to try to illuminate some tax issues.

jollystomper 04-22-2021 10:09 AM

I have keep a spreadsheet racking my 401k breakdown of my contribution, matching contributions, and growth. as of yesterday my contributions were a little more than 20% of its value. I started contributing in 1985 but foolishly did not contribute the maximum until 1998 (when I woke up from the dream that Megacorp pensions and benefits were enough to retire on :)) through my retirement in June 2018.

I do not fear the "tax bomb". As a couple our tax rate during the years we maxed out 401K contributions was higher than we will be taking out at RMD time. When it is just one of us the survivor will still have plenty to live on. I will just deal with as best I can, but it is another first world problem that is not worth my worry.

bada bing 04-22-2021 11:05 AM

Experiencing compound interest and seeing the exponential growth in the rear view mirror is kind of satisfying. I remember thinking the balances weren't moving much at all for years, and they don't really in the early years. The last few years the investment returns dwarf new savings contributions though. It demonstrates how important it was to start early. I could have started a decade earlier myself and the implications of that would have been great, had I done it.

There is a sad implication for people that procrastinated on their savings though. As an example, I have a brother who was always going to get started saving for retirement "next year". I used to nag him about it. Unfortunately, it's now too late, he'll never amass much without time for compounding to work it's magic. He won't starve, but he and his wife's retirement years are going to be subdued. Pretty common story.

firewhen 04-22-2021 12:51 PM

[QUOTE=Bigdawg;2595993]How could the company match be $500k when you didn't contribute 500k? /QUOTE]

That is what it is worth now but their contribution was only about 1/4 of that, which actually makes sense since it was all invested in the same funds. So their $125k went to $500k and my $500k went to $2 million and I now have $2.5 million when only $500k was ever deducted from my paycheck. But as also noted it is all pretax so the net will be much lower.

MrLoco 04-22-2021 01:57 PM

Quote:

Originally Posted by teetee (Post 2595994)
If your other taxable income during retirement (SS and pension) is huge, which is predictable, then converting 401k / tIRA to Roth to avoid RMDs before 72 should help lowering the tax liability.

I agree with your premise but the problem is especially over the past decade, returns have been exceptional and the annual increase in 401k/Trad IRA's values have outpaced annual Roth Conversions ( at least in my case and I am not even 100% stocks in my Trad. IRA). For example, if one's Trad IRA increases in value by $150,000 from last year and it is "financially palatable" to do say a $100,000 Roth Conversion; one can never even catch up to significantly reducing the size of the Trad. IRA. Unless of course one wishes to do something along the lines of a $500,000 Roth Conversion and has the cash on hand to pay the taxes at the 35 or 37% rate. But does this really even make sense even with future tax rate increases? Not sure it does.

Finance Dave 04-25-2021 08:40 AM

Quote:

Originally Posted by street (Post 2596005)
^ true! I'm trying to juggle ACA requirements for a low premium also. Once 65 I should have some more leverage to try to illuminate some tax issues.

First off, great job to the OP in saving so diligently! I bet you have a smile on your face most of the time.

Street, you are in the boat I'm in, so I'll pick up an oar. Most of our money is in TIRAs, and can't convert without risking losing the subsidy.

Wish I would have saved more in Roth IRAs. We have about $250k...but wish it was a lot more than that. But hey, we were in high tax bracket for many years, so contributing mostly to TIRAs seemed like the right thing. Had no idea this ACA cliff was going to come along.

Another complication is that DW is 4 years older than I am...so I'll be paying for ACA even after she's on Medicare...ouch.


All times are GMT -6. The time now is 06:27 PM.

Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.