How much (if any) do you contribute to 401k?

cupcait927

Currently I contribute 4% and there is an employer match on 50% up to the first 4% you contribute. They also automatically bump you up a percent every year in January until you reach 10% (employees can go in and opt out but this is an easy way to increase without feeling it). FI hasn't set up a 401k yet (no company match) but he does have a profit-sharing pension with his current employer and plans on staying with his company for the long haul. I did encourage him after the wedding to look into some sort of other retirement funding arrangement aside from the pension.

beethery

Everyone here is having an adult conversation with numbers and percentages and I'm just like

Maggie0829

Senecaf said:

I contribute 10% to my 401K. Company matches 3%. I have it set up to increase a percent every year on my employment anniversary. I started it at 7%. After the wedding FI and I are going to look into a few different financial saving options. We need to start college funds also. Our oldest is starting 2nd grade and we want to be able to have a decent amount saved for both by the time they graduate HS.

That is actually a really good idea.  I should look into doing that.

photokitty

jenna8984 said:

Maggie0829 said:

NikkiJay3333 said:

I contribute 6% to my Roth 401(k) and my company matches half of what I put in up to 3%.  Once I get married, I will likely increase my contributions to at least 10%.

I chose Roth over pretax for a couple reasons: (1) my tax bracket is most likely lower now than it will be in the future closer to retirement (with likely promotions, raises, plus getting married, not to mention that tax % may change by law in the future given that the country is so broke) so I end up paying less in taxes now than I would be in the future when I retire, and (2)  I like knowing exactly how much money I have in my 401(k) that I will have available when I retire, as opposed to having to pay taxes on that money when I cash it out.

Pretty much why I chose a Roth over a pretax.

I think that is flawed. Say you get promotions and you're up to earning 75k a year- you'll be in the 30% tax bracket. But once you retire you will not be earing 75k a year. You will be taking only what you need to live (say 40k) a year in retirement distributions. Hence, you would then be in a 15% tax bracket at that time.

That's flawed too...if you don't make more in retirement than you make now you'll be in bad shape. If you need 75K to live now you, do you really want to live off 40K in retirement?

I'm with Maggie & Nikki - that's why I hardly put anything in deferred comp and most of my money in the Roth. 

BUT, If I had a 401K that had matching I would totally do it to the max match, regardless of the pre-tax situation.

chibiyui

5% for company match.

theartistformerlyknownas

SBmini said:

Husband does 10%, I currently do 7%. I need to bump it up a bit. I know I do, but the other money goes into liquid savings, which isn't bad. My company does a 'bonus' contribution at the end of year based on business. BUT I'm not fully vested in this 'bonus' until I've been here for six years. It is one of the biggest crock of shit benefits ever. No one stays at an advertising agency for six years and they know that. So they get to collect back their money when you leave.

Ain't that the truth. Mine have always been fully vested in a max of 3 years. My current agency you're vested from day 1.

lkristenj

I have tried to set mine up no less than 3 times. But, my employer is a stick-in-the-mud and now we've been acquired and everything is a mess. I've worked here for 4 years and haven't paid a single penny into anything and it makes me sick. That said, the plan kind of sucks. They match at 25% up to 2%.

I was going to finally force them to file it in December of last year, but that's when they announced the acquisition and I just gave up. This is the last year my company will run 401K and beginning next year the new company will handle all of that and I will be on their PTO and match schedule, but still maintain my vesting.

Ugh. I hate everything about this situation and every month I go without it I feel a little more sick. I have a degree in finance so you better bet I know how much it impacts the future. Still, since we have the wedding and moving into a house with a mortgage and all that coming up later this year, I need to save all I can so we can come out with some savings on the other side. I'm a good saver, but it sucks not getting any return. I just don't think our income can take that hit right now.

ETA: I wouldn't be fully vested here until 6 years anyway. Ugh.

jenna8984

photokitty said:

jenna8984 said:

Maggie0829 said:

NikkiJay3333 said:

I contribute 6% to my Roth 401(k) and my company matches half of what I put in up to 3%.  Once I get married, I will likely increase my contributions to at least 10%.

I chose Roth over pretax for a couple reasons: (1) my tax bracket is most likely lower now than it will be in the future closer to retirement (with likely promotions, raises, plus getting married, not to mention that tax % may change by law in the future given that the country is so broke) so I end up paying less in taxes now than I would be in the future when I retire, and (2)  I like knowing exactly how much money I have in my 401(k) that I will have available when I retire, as opposed to having to pay taxes on that money when I cash it out.

Pretty much why I chose a Roth over a pretax.

I think that is flawed. Say you get promotions and you're up to earning 75k a year- you'll be in the 30% tax bracket. But once you retire you will not be earing 75k a year. You will be taking only what you need to live (say 40k) a year in retirement distributions. Hence, you would then be in a 15% tax bracket at that time.

That's flawed too...if you don't make more in retirement than you make now you'll be in bad shape. If you need 75K to live now you, do you really want to live off 40K in retirement?

I'm with Maggie & Nikki - that's why I hardly put anything in deferred comp and most of my money in the Roth. 

BUT, If I had a 401K that had matching I would totally do it to the max match, regardless of the pre-tax situation.

Well the goal is to have your home and cars paid off by retirement. Like my parents only pay a few grand for their property taxes & insurance and then the basics like food, electricity, vacations. They easily live off a third of what they once made.

littlemushroom

@jenna8984  I don't operate under the assumption that I will be in a lower tax bracket when I retire.  My parents planned well, and have the same income in their retirement that they had when they were working.  I plan to do this as well.  

Most people would not want to take the huge hit to their income level that you are assuming for retirement.  Having a drastic change in income level (from 75k to 40k), especially in the first few years of retirement is most likely unmanageable.  You are talking about almost a 50% reduction in income.  Not to mention that many retirees find they spend much more than they "planned" for in the early years of retirement (for example, they start traveling much more because they had put it off until they could enjoy it in retirement).

That drastic reduction in available income (from 75k to 40k, in your example) would not be offset by savings from not working.  I certainly do not spend almost half my income on expenses related solely to being in the workforce.  Many people do not have those kind of expenses related to the workforce.  Which means that your necessary expenses are not going to decrease in retirement as much as your income.  That means you have virtually the same expenses as before, but have to take care of them on half the income.  Food, utilities, and gas will only get more expensive in the future as well.  

Since I will be (likely, hopefully) in the same tax bracket now as in the future, it is better to pay tax now than later.  This is especially likely to be true given that income taxes will increase by law in the future given the country's financial difficulties.

sarawifenow

jenna8984 said:

photokitty said:

jenna8984 said:

Maggie0829 said:

NikkiJay3333 said:

I contribute 6% to my Roth 401(k) and my company matches half of what I put in up to 3%.  Once I get married, I will likely increase my contributions to at least 10%.

I chose Roth over pretax for a couple reasons: (1) my tax bracket is most likely lower now than it will be in the future closer to retirement (with likely promotions, raises, plus getting married, not to mention that tax % may change by law in the future given that the country is so broke) so I end up paying less in taxes now than I would be in the future when I retire, and (2)  I like knowing exactly how much money I have in my 401(k) that I will have available when I retire, as opposed to having to pay taxes on that money when I cash it out.

Pretty much why I chose a Roth over a pretax.

I think that is flawed. Say you get promotions and you're up to earning 75k a year- you'll be in the 30% tax bracket. But once you retire you will not be earing 75k a year. You will be taking only what you need to live (say 40k) a year in retirement distributions. Hence, you would then be in a 15% tax bracket at that time.

That's flawed too...if you don't make more in retirement than you make now you'll be in bad shape. If you need 75K to live now you, do you really want to live off 40K in retirement?

I'm with Maggie & Nikki - that's why I hardly put anything in deferred comp and most of my money in the Roth. 

BUT, If I had a 401K that had matching I would totally do it to the max match, regardless of the pre-tax situation.

Well the goal is to have your home and cars paid off by retirement. Like my parents only pay a few grand for their property taxes & insurance and then the basics like food, electricity, vacations. They easily live off a third of what they once made.

While, yes, this is everyone's goal, life happens. Things come up and paying off a house and a car is not always feasible. Roths are great for this reason. If you need to get the money out, it is tax free. Roths are also good to cover any emergency expenses that come up.

Maggie0829

jenna8984 said:

photokitty said:

jenna8984 said:

Maggie0829 said:

NikkiJay3333 said:

I contribute 6% to my Roth 401(k) and my company matches half of what I put in up to 3%.  Once I get married, I will likely increase my contributions to at least 10%.

I chose Roth over pretax for a couple reasons: (1) my tax bracket is most likely lower now than it will be in the future closer to retirement (with likely promotions, raises, plus getting married, not to mention that tax % may change by law in the future given that the country is so broke) so I end up paying less in taxes now than I would be in the future when I retire, and (2)  I like knowing exactly how much money I have in my 401(k) that I will have available when I retire, as opposed to having to pay taxes on that money when I cash it out.

Pretty much why I chose a Roth over a pretax.

I think that is flawed. Say you get promotions and you're up to earning 75k a year- you'll be in the 30% tax bracket. But once you retire you will not be earing 75k a year. You will be taking only what you need to live (say 40k) a year in retirement distributions. Hence, you would then be in a 15% tax bracket at that time.

That's flawed too...if you don't make more in retirement than you make now you'll be in bad shape. If you need 75K to live now you, do you really want to live off 40K in retirement?

I'm with Maggie & Nikki - that's why I hardly put anything in deferred comp and most of my money in the Roth. 

BUT, If I had a 401K that had matching I would totally do it to the max match, regardless of the pre-tax situation.

Well the goal is to have your home and cars paid off by retirement. Like my parents only pay a few grand for their property taxes & insurance and then the basics like food, electricity, vacations. They easily live off a third of what they once made.

Sure I guess that is the goal if you buy and stay in the first home you ever purchase.  But most people do not do that and tend to like to upgrade their home over time.  For example, H and I own a town home, but in about another 3-5 years will want to upgrade to a single family home.  Then from there we may want to upgrade again (or maybe even downgrade to something smaller when we retire).  But the point is, typically when you sell your home you don't make anywhere near enough from the sale to buy a new home out right.

My parents bought a home in Florida for retirement about 9 years ago.  They had refinanced their old home to be able to buy it outright.  Then about 4 years later they decided to sell their old home. If they hadn't refinanced they would still have a mortgage on their current home.  But they have many friends in their retirement community who have mortgages because they weren't able to buy outright.

daria24

My company doesn't offer a 401k, or any retirement options. I have an IRA and contribute the max every year. H had a  Roth IRA and does the same. Retirement is going to be a bitch for us, since the max IRA contributions are pretty low. 

NYCBruin

jenna8984 said:

AprilH81 said:

jenna8984 said:

@aprilh81 & @couggal12 Why the interest in Roth? I was always told that you're likely in the 30% tax bracket during your working career but likely in the 10% tax bracket upon retirement (since your only income is distributions). So why pay on it now at estimate 30% instead of later at 10%?

The ROTH IRA is funded with post-tax funds and when you take the money out it is ALL tax free (both the contributions and earnings).  

Here is an article that explains the benefits better than I can.  http://www.kiplinger.com/article/retirement/T046-C006-S001-why-you-need-a-roth-ira.html

I guess I still don't understand the draw because they (most articles) are focused on the fact that you don't pay taxes on it later, but they are neglecting to see that you are paying 20-30% taxes on it today. So you are paying 30% on it when you can just wait and pay 15% on it later....what am I missing lol

It's not just the contributions that are taxed, it's also the earnings, which could be (and hopefully are) substantial. 

flyingfoxes

Luckily FI will have his military retirement as well when he retires in 4 years, so that will be our mortgage money.  So our saving rate should step up considerably after that (hoping my current house sells quickly when I list it in the next couple of weeks).

littlemushroom

While the goal is always to have the house and car paid off, things can and do happen. They could be in an accident where the car is totaled. There could be a tornado, flood, or other natural disaster where the house is beyond repair. Or they could just have a series of bad luck with necessary home and car repairs. If people retire at 65, yet are expected to live until 84 or after, that is another 20 years. Roofs need to be replaced on average every 10-15 years, assuming there aren't major storms like there have been the last few years. Furnaces and water heaters are typically replaced in that length of time. Cars are replaced within 20 years. What about other appliances like washing machines, dishwashers, refrigerators, etc? All of those items are typically replaced by necessity within 20 years. All of those items will only get more expensive in the future as well. It doesn't serve anyone to plan on never having another car or house payment after retirement. Not to mention all of the other necessary expenses that come with having a house and a car. ETA: TK ate my paragraphs and won't let me add them again.

jenna8984

@nikkijay3333 @maggie0829 Ah good points. It is MY top priority to make sure my home is paid off before retirement but that may not be for others. I think the best plan if you choose to upgrade homes and take on a new mortgage at say 40 years old, you should seriously consider a 15-20 year mortgage. I'm 29 and FI and I are looking at houses well below our max budget with the plans of getting a 20 year mortgage. Yes you sacrifice for something a little cheaper now and higher payments now but you save around 100k in interest, which in my mind could all go towards retirement.

audubonbride2013

I contribute 7% Roth and my employer matches 5%, so I currently have 12% in total contributions.  I raise my contribution rate when I get a raise.  I will also have a pension, so I feel like I will be in good shape.  

I contribute Roth because I'm under 30 and I am expecting my earnings to be rather large by the time I retire.

Sugargirl1019

15%.

Dave Ramsey y'all.

ETA: I love the increasing percentage by 1% every year thing also. So all of you who do that, props to ya. Everyone else, set yourself up on it if you can't contribute more right now.

ShallowSeas

I can't remember exactly but i think its somewhere between 3-5% because thats what it had to be for my employer to match it...so not much   I do plan on contributing more once I find a better paying job.

jenna8984

Thanks ladies. I'm seeing the light of Roth's now. I know my company doesn't offer one but I may have to look into individual roth IRA's and divide up my current contributions. I didn't realize the tax affected the earnings as well!

emmyg65

6% to get max employer match, but I'm planning to up it to 10% when I get my next raise/promotion. I try to put my COL raise in it every year. Employer gives me an additional 11% (hells yeah, higher ed!). But our real priority is increasing the contribution to my husband's 401k. He's 48, got a late start, and lost half of it in his divorce two years ago. So we've got some lost ground to make up before we're in a place I'm comfortable with.

kat1114

I must confess that I have not started contributing to my 401k. My company matches 3%, but only after 1 year. Although my year is coming up, between paying for a wedding and owing 6 figures in student loan payments, I have not given a lot of thought to retirement funds. But it was nice reading through everyone's comments! Definitely has given me some stuff to think about.

Maggie0829

jenna8984 said:

@nikkijay3333 @maggie0829 Ah good points. It is MY top priority to make sure my home is paid off before retirement but that may not be for others. I think the best plan if you choose to upgrade homes and take on a new mortgage at say 40 years old, you should seriously consider a 15-20 year mortgage. I'm 29 and FI and I are looking at houses well below our max budget with the plans of getting a 20 year mortgage. Yes you sacrifice for something a little cheaper now and higher payments now but you save around 100k in interest, which in my mind could all go towards retirement.

That is all well and good for you and your FI, but H and I would not have been happy (nor are their houses that inexpensive where we live) to buy something well below our max budget.  Our area is very expensive.  Condos around my part go for $175K and up...that is for a 2 bedroom condo.  So for us to have found a house for a lot less then our max budget we would have had to buy an old fixer upper resulting in hours and hours of work and money in contractors and other vendors to make our house livable.  So for us, in our area, we had to go with our max budget and we had to go with a 30 year loan because we wouldn't have been able to afford a shorter one.

Not everyone lives the same and what works for you will not work for everyone else.  H and I don't plan on living in our same home for the rest of our lives.  We plan on selling and moving to a different state in a few years.  And we will most likely sell and move again in the future.  And I am sure that a shorter mortgage will not work for us at that time either. We also don't plan on keeping the same car once we retire.  That is a long time to keep a car and hope that nothing drastic happens to it.

Life happens and you need to be open and ready for the possibility that your plans may not work out.

clarke10

I contribute 6.5% because that's what my employer matches. I have to work for the state for at least 5 years in order to receive their contributions. 

jenna8984

Maggie0829 said:

jenna8984 said:

@nikkijay3333 @maggie0829 Ah good points. It is MY top priority to make sure my home is paid off before retirement but that may not be for others. I think the best plan if you choose to upgrade homes and take on a new mortgage at say 40 years old, you should seriously consider a 15-20 year mortgage. I'm 29 and FI and I are looking at houses well below our max budget with the plans of getting a 20 year mortgage. Yes you sacrifice for something a little cheaper now and higher payments now but you save around 100k in interest, which in my mind could all go towards retirement.

That is all well and good for you and your FI, but H and I would not have been happy (nor are their houses that inexpensive where we live) to buy something well below our max budget.  Our area is very expensive.  Condos around my part go for $175K and up...that is for a 2 bedroom condo.  So for us to have found a house for a lot less then our max budget we would have had to buy an old fixer upper resulting in hours and hours of work and money in contractors and other vendors to make our house livable.  So for us, in our area, we had to go with our max budget and we had to go with a 30 year loan because we wouldn't have been able to afford a shorter one.

Not everyone lives the same and what works for you will not work for everyone else.  H and I don't plan on living in our same home for the rest of our lives.  We plan on selling and moving to a different state in a few years.  And we will most likely sell and move again in the future.  And I am sure that a shorter mortgage will not work for us at that time either. We also don't plan on keeping the same car once we retire.  That is a long time to keep a car and hope that nothing drastic happens to it.

Life happens and you need to be open and ready for the possibility that your plans may not work out.

Trust me I feel the pain of being in a high cost of living area as well in Massachusetts. I know people in condos that were 275k. We very may well have to scratch our plan because everything we find "acceptable" to us is at least 40k over where we need to be to afford a 20 year mortgage. So we're hoping for a miracle but I hear you that it may not happen! lol

My parents lucked out- they sold a paid off home in MA and bought one for cash half the price in SC. Not many people have that option nearing retirement!

jenna8984

@audubonbride2013 Do you happen to know if you will pay taxes on your pension? Does it differ per company/ pension?

Cookie Pusher

The condos they just built across the street from me are starting at 725k. Unless I come into a windfall, we'll be going for a 30 year mortgage when we do buy a house because there is no way we could afford a shorter one.

KatWAG

To me, ROTHs are too limiting with the salary limits and contribution limits. If you meet the salary requirements for a ROTH you can only contribute $5,500 per year. With a 401k is $17,500 per year.

Lizzieyounce

I did 10% and company matched it.  

I also have a Roth, which you don't have to take the Required Minimum Distribution from once you hit 69.5 years of age.  You can just never touch it if you don't need to and pass it on to heirs…with a regular IRA you MUST take an RMD, even if you don't need it.  This could up your tax bracket at retirement.

theartistformerlyknownas

Another thing to keep in mind with the debate about expenses in retirement is plans with a mandatory minimum withdrawal once you hit a certain age. You may not NEED to take the money out for your downsized home and paid off car, but you have to take it out anyway. If you count on being in a lower tax bracket as a retiree you may shoot yourself in the foot.