Can I be putting too much into 401k????

Question

I am currently putting 15% into my 401k plan but I've read recently that it could be over kill and that you really don't need a "millon dollars" to retire....and I know it depends on what kind of life style you want to live too but I guess my question is should back down my 401k percentage (roughly to 8 or 10%) and invest somewhere else? 401k is currently my only "retirement" savings.
I know people are going to respond and say do what you can afford (which thats a no brainer) but I hope that you get the gist of the question.

Answer 1

15% is a very good amount to invest in your future.

Who said $1M is too much to retire on?

First, 15% into your 401(k) will reduce your taxable income. You won't get that kind of shelter with other investments.

Second, this is YOUR future! 15% will grow nicely and quickly, especially with your company match.

Third (and my Dad gave me this advice), you don't miss it. You are living off of your remaining 85% without any financial dire straights.

Answer 2

No, 15% is not too much and as long as you can move the money within the 401k around into different types of investments that's probably ok. It's important to be diversified so you have some money in stocks, some aggressive, some safer, some in government securities and so forth. If you want, you could always lower to 10% and put the other 5% in mutual funds separately.

Answer 3

First off Great Job.

I'm sure you have no debit, and depending on how much you have left on the house you may pay that off sooner, the tax ducting runs out as you pay it off then speed up the pay off.

You said this is your only retirement do you have some other cash or liquid assets some were els?

The only bad thing about the 401k is that it is locked away, So it does seem like it is time to cut back some and look for something els. I like saving bond,s there is no tax and there are care free not much of my time and i can cash them in any time.
4.5% with one tax is better than 7.5% with tax and more tax paper work.

Does your company math your contributions? if so max that out then look for some thing els.

Best of luck

Answer 4

The quick answer to your questions is "Yes you can" but that has several quallifiers.
Let's discuss a few.
1) What percentage of your income does your company match as a contribution to your 401(k)? Some companies match only 2% of an employees' income and they match it 100%. Others match 6% of the income and maybe only 50%. There are many formulas.

Suppose you earn $50,000 and you can afford to save 15% as you stated. You have $7,500 per year to save. If your company matches 100% of your contribution up to 5% of your income, that means when you put in $2,500, the company puts in $2,500. That is a great deal. If you save $7,500 dollars and the company matches $2,500, you now have $10,000 working for you.

But what should you do with the money over the part that the company matches, the $5,000? My first suggestion would be put as much as you can in a Roth IRA, because when you take it out at retirment, it comes out tax free. Depending on your age the amount you can invest varies. Roth IRAs have much more flexiblity than 401(k)s do. Any that you can't put in the Roth, put in your 401(k).

2) The last part of your question is related to how much do you need to retire. With inflation today at around 3%, let give you some numbers. If you are 30 today and plan to retire at age 65, you have 35 years for that inflation to drive up the cost of living, i.e. make it more expensive to live.

$1,000,000 today, in 35 years will buy you what $355,000 will buy to day at 3% inflation. If inflation increases to 4%, that million will only buy $250,000 worth of good.

Both figures are large, but if you have to live on $355,000 of spending power and you want it to last for the rest of your life you should only with draw about 5% or less per year. That will be like living on $17,000 per year today. If you are earning the $50,000 I used as an example above, how are you going to live on $17,000 of spending power in the future when it takes $50,000 today. If inflation is 4%, you will only have the equivalent spending power of $12,000 per year. That's even worse.

The common answer to the question is "Social Security will cover my retirement." It is going broke at the current rate it is paying out. Don't count on it.

Is $1,000,000 enough? You answer the question. I am retired and I couldn't live on $12,000 or $17,000 of spending power; nor would I want to.
Go to Smartmoney.com or Yahoo finance, they have good information. Spend some time reading.

Answer 5

I would put only what your company matches in the 401K. Put the rest of the money in a Roth IRA, because you can take out anything you put in it at anytime with no penalties. Plus there is no taxes on a Roth IRA when you retire. The only downside is you pay taxes on it now. But this is still an amazing product offered at your choice of financial companies.

Answer 6

well, lets see, do you not think you'll need a million dollars to live on when you retire? How about living large? Going on cruises every year, twice or three times a year? What about getting a big house on the beach? What about all the medical bills, such as if you get a disease or something. Think about it, there is never to much money. And you could always leave it to your kids who I'm sure could use it in the future.

Answer 7

No its not over kill...and you will need a million dollars to retire

People are living longer these days and they only saved enough money to last until they are a certain age...but most people live longer then they thought so they run out of money...