Is only maxing out a 401k and IRA "enough"? (2024)

Hello all,

I'm know this question has been asked before, but the search function is not bringing up this topic for whatever reason so apologies for the repeat question and please feel free to link me relevant topics.

My question is, I believe, quite straight forward: Is maxing out and contributing to only a 401k and an IRA "enough"?

A little more context: I was just playing around with some simulations on Portfolio Visualizer and did a very straightforward simulation with an 80/20 AA, starting balance of $250k (my approximate current investment balance), and monthly contributions (max divided by 12). I also assumed both DH and DW are maxing out both accounts (true for my case). I ran the simulation for a 30 year period.

The results, even for the 10th percentile, were very promising; hitting 1M in roughly 10 years and over 7M after 30. I know that what is considered "enough" varies wildly from person-to-person, but I have a hard time believing that the vast majority of Americans would not be comfortable with 7M after 30 years, myself very much included. When you factor in SS and any taxable investments made during those 30 years, the level of "comfortable" begins to skyrocket.

Is it that simple? What am I missing here?

I guess what spawned this question for me was the fact that DW and I have yet to contribute to any taxable accounts and it made me wonder how "far behind" it was or could be putting us. We've done well maxing out 401ks and IRAs the last few years, but haven't been able to begin contributing to a taxable. We're still young (28 and 30) so I was never truly concerned, just curious about the numbers. After running the above simulation, it makes me sort of wonder if there needs to be such a big emphasis on taxable for us? Can we afford to defer some/most/all of the money that would have gone to taxable on other things that we enjoy, such as travel/vacations, which we value the most, as long as we continue to max our 401k and IRA? To me the answer is obvious (absolutely yes), but again, I wanted to see if there was something I was missing?

To be clear, this is not a question or discussion regarding spending habits or anything like that. We have no debt other than a mortgage @ 2.75% and spend well below our means. We have no intention of actually spending every extra dollar instead of investing it. It is intended to be a thought experiment and I hope to learn some great information from you guys!

Thank you!

Hardly anyone even maxes out their 401k. Just maxing out a single IRA from age 25-65 would get you about $3 million at 9% returns (at current maximums, it will likely increase).

"enough" is not a word that anyone can define.

I don't think anyone can answer that except for themselves. Worth considering that BH is way out of the "normal" range of retirement savings. That is usually a good thing, but it can also skew expectations.

Most people out there don't save more than a few percent for retirement at best. They make it work, maybe not with a luxurious retirement, but they make it work. Maxing out 401k and IRA for several decades will put you in the top few percent of Americans which is a pretty good place to be.

Yes, maxing out 401ks and your IRAs will put you well ahead of the game, and put you on course for an early retirement. 250k at your ages is a great start, just keep doing what you're doing, and enjoy life!

Well. Technically yes, if you just look at the numbers.

But. Having money in a brokerage account is important, for many reasons:

- It's accessible (1). There is more to life than retirement, and you may want or need to have money available before you retire. How about buying a home? Kids are expensive. Traveling is nice. Cars need replacement. Older parents may need assistance. A job may be lost along with its income and it may take months to find a new one. New job may require relocation.

- It's accessible (2). If you reach 2, 3 or 5 millions, you may want to retire before you're 59.5 and can access your retirement money. A brokerage account will let you do that.

- Taxes on gains are cool. Long Term CG are taxed at 15%, and you can harvest losses. In retirement, this lets you "manage" your taxes and keep them at a level you are comfortable with, as opposed to getting all of your income from a 401(k) taxed at your marginal tax rate. Yes, you'll a have a Roth to help with that too, but it may not be high enough.

Sure, it is more than enough to retire at the age when one will get full SS benefits as long as one has reasonable expenses.

Sometimes people want to retire before getting SS benefits and also want to have lavish expenses.

Thanks for all the responses so far.

There's no doubt this forum is skewed towards a much different economical demographic that the average American. I know personally I sometimes get caught up trying to compare myself to other BH members which is part of what sparked the discussion like I mentioned.

@pasadena - Thank you for brining up the accessibility point. FIRE is one thing that is for sure on my mind so having millions essentially locked behind retirement accounts is something I had not considered. Definitely a reason to add to taxable.

prd1982 wrote: ↑Mon Jan 08, 2024 10:21 amIs the 7 million in today's or 30 years from now dollars? If in future dollars then "only" worth 3 million.

The numbers are inflation adjusted. I take that back, you are right. There was an "inflation adjusted" tick box on the chart that I missed. A little over 3M after 30 years (10th percentile). Definitely not as impressive, but still significant in my opinion.

DMB41 wrote: ↑Mon Jan 08, 2024 10:51 amThanks for all the responses so far.

There's no doubt this forum is skewed towards a much different economical demographic that the average American. I know personally I sometimes get caught up trying to compare myself to other BH members which is part of what sparked the discussion like I mentioned.

@pasadena - Thank you for brining up the accessibility point. FIRE is one thing that is for sure on my mind so having millions essentially locked behind retirement accounts is something I had not considered. Definitely a reason to add to taxable.

prd1982 wrote: ↑Mon Jan 08, 2024 10:21 amIs the 7 million in today's or 30 years from now dollars? If in future dollars then "only" worth 3 million.

The numbers are inflation adjusted. I take that back, you are right. There was an "inflation adjusted" tick box on the chart that I missed. A little over 3M after 30 years (10th percentile). Definitely not as impressive, but still significant in my opinion.

Between access to Roth contributions and either the Roth conversion ladder or SEPP, nothing is "locked." Heck, depending on your current tax bracket and spending, a future tax bracket + 10% penalty might still represent an overall tax savings.

sailaway wrote: ↑Mon Jan 08, 2024 11:14 am

DMB41 wrote: ↑Mon Jan 08, 2024 10:51 amThanks for all the responses so far.

There's no doubt this forum is skewed towards a much different economical demographic that the average American. I know personally I sometimes get caught up trying to compare myself to other BH members which is part of what sparked the discussion like I mentioned.

@pasadena - Thank you for brining up the accessibility point. FIRE is one thing that is for sure on my mind so having millions essentially locked behind retirement accounts is something I had not considered. Definitely a reason to add to taxable.

prd1982 wrote: ↑Mon Jan 08, 2024 10:21 amIs the 7 million in today's or 30 years from now dollars? If in future dollars then "only" worth 3 million.

The numbers are inflation adjusted. I take that back, you are right. There was an "inflation adjusted" tick box on the chart that I missed. A little over 3M after 30 years (10th percentile). Definitely not as impressive, but still significant in my opinion.

Between access to Roth contributions and either the Roth conversion ladder or SEPP, nothing is "locked." Heck, depending on your current tax bracket and spending, a future tax bracket + 10% penalty might still represent an overall tax savings.

True, but I personally find those techniques either too inflexible (SEPP) or bothersome. Roth conversion ladders are a nice idea but they're expensive in taxes. I think if you have enough money and enough time, saving in brokerage over time is a better solution.

That said, I didn't specify it, but I would only save in brokerage if I maxed-out retirement accounts first (for retirement money). So I guess in my mind the alternative is spending - OP didn't specify if they still had room to save after maxing out or not. If they don't, then maxing out is the way to go.

The rest of my points still stand, though.

OP,

"It depends".

If maxing out a 401K and IRA equal to saving 1 year of current annual expense, it is enough.

If maxing out a 401K and IRA equal to saving 1% of current annual expense, it is not enough.

"The results, even for the 10th percentile, were very promising; hitting 1M in roughly 10 years and over 7M after 30."

And, the number 1M or 7M has no meaning either.

What is your number? What is your financial goal?

Can you be financially independent with 1M? 7M?

Can you retire with 1M? 7M?

KlangFool

This is a great question! I have reflected on this myself. Last year I came close to maxing my SIMPLE IRA, maxed ROTH and HSA. It will take another pay increase to manage to max my SIMPLE. I, However, do not contribute anything to a taxable account currently because I don't have extra money to allocate after liquid savings and expenses at the moment. Unless DW increases her income significantly, which she is attempting to do in the next 3-5 years, I don't see a time where funding a taxable will become feasible for us.

We are 32/29 and assuming we remain gainfully employed at current levels and receive pay increases until retirement, the projections certainly seem to say we will be safe.

Yes, if you max and are under age 50 you are saving $23,000 + $7,000. That's $30,000 and doesn't include employer match in the 401k if applicable. The average American salary is $59,428 a year. If $30k saved for 25-35 years isn't enough for your retirement you have a spending problem not a savings problem.

If you max 401k and IRA in a household for two working adults you should be in an even better position for retirement.

When you say max are you talking about the 401k contribution limit ($23,000) or the plan limit ($69,000)? And is both husband and wife each reaching their contribution/plan limits?

Usually a higher single income households usually would have less access to tax advantaged savings compared to a dual income household where each person has their own 401k plan. Personally I'd usually favor filling up all tax advantaged accounts before adding to taxable

GP813 wrote: ↑Mon Jan 08, 2024 11:56 amYes, if you max and are under age 50 you are saving $23,000 + $7,000. That's $30,000 and doesn't include employer match in the 401k if applicable. The average American salary is $59,428 a year. If $30k saved for 25-35 years isn't enough for your retirement you have a spending problem not a savings problem.

If you max 401k and IRA in a household for two working adults you should be in an even better position for retirement.

Thanks for the input. This is in-line with my thinking as well. My calculations in the initial post do not factor in my 10% employer 401k contribution. And like I also mentioned, does not include SS or any additional investments, such as taxable. Like you and others have mentioned, most Americans retire on much less, many on nothing but SS. I would not consider those to be "comfortable" numbers, but at the same time, the numbers I've presented are probably on the opposite end of bell curve when it comes to retirement savings.

Yarlonkol12 wrote: ↑Mon Jan 08, 2024 12:19 pmWhen you say max are you talking about the 401k contribution limit ($23,000) or the plan limit ($69,000)? And is both husband and wife each reaching their contribution/plan limits?

Usually a higher single income households usually would have less access to tax advantaged savings compared to a dual income household where each person has their own 401k plan. Personally I'd usually favor filling up all tax advantaged accounts before adding to taxable

Both of us are maxing out contribution limits. We are currently maxing all tax advantaged accounts available to us, which as of now is just the 401ks and IRA.

See Klangfool's earlier posts.

Maxing 401k+ IRA at your ages (x2) is indeed a good thing and you are on the right track.
Assuming, you will be employed for the next 30 years with salary increases. That is a big IF for most people.
You also have to think about intermediate goals like, house, kids (and college), unemployment or disability etc.

60K per year is a LOT of savings for some, and not much to others, only you know your numbers. Save 25% is a good goal.
You should strive for balance living life and saving for the future, because you never know.

whodidntante wrote: ↑Mon Jan 08, 2024 10:48 amFor example, I have zero interest in maintaining a second home, or in maintaining a boat.

Second that

DMB41 wrote: ↑Mon Jan 08, 2024 10:09 am
My question is, I believe, quite straight forward: Is maxing out and contributing to only a 401k and an IRA "enough"?

Is it that simple? What am I missing here?

I guess what spawned this question for me was the fact that DW and I have yet to contribute to any taxable accounts and it made me wonder how "far behind" it was or could be putting us. We've done well maxing out 401ks and IRAs the last few years, but haven't been able to begin contributing to a taxable. We're still young (28 and 30) so I was never truly concerned, just curious about the numbers. A

You are missing some variables:
life long income trajectory
will no have no choice but to work until Full Retirement age (which is currently 67) and not 65?

For income - some people earn more or less the same amount (sometimes adjusted for inflation) for the better part of their work life.

Social Security "replaces" a good chunk of income for lifelong median and lower income earners. If they also save/invest over the course of their life time (let's remember that 10% of a 60K income is 6K) they should have a comfortable retirement - maybe even starting it in their early 60's.
if you are a high income earner - in theory - you will have a higher expense life style and will require more money to supplement SS once you do retire.

When I was in my 20's - the going rule of thumb was to save 3 to 5% for retirement - that was all you need to do and you'd have a wonderful comfortable retirement. I'm glad I starting saving for retirement in my 20's - and I did a "set it and forget it" rate of 8% thinking I was all set! And then in my late 30's I realized I wasn't saving enough of my now much higher income. I wish I had paid more attention and saved a few percent more for those 10 to 15 years... I wouldn't have noticed the extra savings. I just would have frittered away less money.

There's also the fact that we go through different stages in our life. You need to routinely review your financials and your goals and what you want your future to look like. These are all subject to change as you go through life.

My advice: it's great that you are able to max out your retirement accounts while so young. Now is the time to come up with short, middle, and long term financial goals. So you can keep your thumb on the pulse of how much you may need in retirement (or if you want to go for an early retirement - before your Full Retirement age and or 65.)

My rule of thumb is that 20% of your gross income, up to age 60, is a good target.

If maxing out your 401(k) and IRA is less than 20%, save more - in a brokerage account, perhaps. The brokerage account will be helpful if you want to "bridge" income for years where you are delaying the claiming of Social Security. Extending your claiming age to 70 is a COLA'd best practice.

Keep in mind that the average American *plans* to work until age 65 - but the actual average retirement age is 61. So you needs funds for medical insurance, and funds to live on prior to Social Security. I would end all of my planning trajectories at age 60. If I can work longer - and want to! - I will still be financially able to quit or retire should I need to - due to elder care issues for parents, or medical issues for myself or spouse.

Also - I would make sure that some of those retirement vehicles are in Roth; having the ability to control some thresholds of income in your later years is very valuable, especially in regards to Social Security taxation, and Medicare premium surcharges.

DMB41 wrote: ↑Mon Jan 08, 2024 12:30 pm
Like you and others have mentioned, most Americans retire on much less, many on nothing but SS.

DMB41,

And, how is that relevant for you and me?

For example, my annual expense is at 60K per year. And, I cannot count being fully employed continuously until I can withdraw social security.

A) I cannot count on social security before I retired.

B) With SS alone, I have to lower my living standard during retirement.

"It depends"

1) Can you count on being fully employed until 62 years old?

2) Can SS alone maintained your current living standard in retirement?

3) Is your annual saving enough to maintain your current living standard in retirement?

4) Is it acceptable for you to live on far less during retirement?

KlangFool

This is a good and interesting question. Why is there such things as 401k and IRA in the US laws? Presumably, it was to encourage people to save money they earned and incentivize them to save so they don't need to gov't to feed and clothe them in old age.

The limited are set, presumably, to limit the amount of tax advantage so the gov't can collect a larger % of taxes now when it needs them - not in 50 years when everyone retires.

It's not likely that the government set, arbitrarily limited tax deferral amounts of these two commonly available types of accounts happens to match what you or the average American needs to save over time to retire.

I like to look at from a different point of view:

Throughout my career, what % should I save & invest for the long term so that I can retire like I want? For many people I suspect it's going to be more than 10%, and 20% seems like a pretty good number if we're talking in generalities. We have to take a guess. So, if I decide 20% of earning is how much I want to save for retirement, how much of that can I put into tax deferred (and appropriate) long term investments? If I think my retirement tax rate will be lower than my working tax rate, tax deferral is of course more attractive). At some point my earnings [hopefully] improve and are high enough that I run out of tax deferred space - I'm forced to save more than the arbitrarily limits of 401k + IRA. That's not a terrible thing, as it makes sense to have both tax deferred and not taxed deferred long term savings. So, if I am only able to put the 11% of my 20% savings into tax deferred space before it is full, I have 9% to put into non-tax deferred.

greg24 wrote: ↑Mon Jan 08, 2024 10:18 amYes, maxing out 401ks and your IRAs will put you well ahead of the game, and put you on course for an early retirement. 250k at your ages is a great start, just keep doing what you're doing, and enjoy life!

My main savings are ira’s and 401k. A very small taxable account and bank savings account. I couldn’t max out for 2/3 of my work life. I contributed 15% of salary/bonus. Now retired, am doing well.

If I wanted to retire in my 50’s or earlier I would want taxable to use for living expenses.

KlangFool wrote: ↑Mon Jan 08, 2024 1:03 pm

DMB41 wrote: ↑Mon Jan 08, 2024 12:30 pm
Like you and others have mentioned, most Americans retire on much less, many on nothing but SS.

DMB41,

And, how is that relevant for you and me?

For example, my annual expense is at 60K per year. And, I cannot count being fully employed continuously until I can withdraw social security.

A) I cannot count on social security before I retired.

B) With SS alone, I have to lower my living standard during retirement.

"It depends"

1) Can you count on being fully employed until 62 years old?

2) Can SS alone maintained your current living standard in retirement?

3) Is your annual saving enough to maintain your current living standard in retirement?

4) Is it acceptable for you to live on far less during retirement?

KlangFool

I dont understand your reponses given your past posts....

"And, how is that relevant for you and me?
For example, my annual expense is at 60K per year."
That was with the mortgage - you paid that off.... and SS will now cover your entire expenses.

"And, I cannot count being fully employed continuously until I can withdraw social security."
You were a one earner family and were laid off - you still have excess funds.

"A) I cannot count on social security before I retired."
Your abililty to fill in the need is about 500X or more now.

"B) With SS alone, I have to lower my living standard during retirement."
Not according to your past posts.

KrisNC wrote: ↑Mon Jan 08, 2024 12:41 pmSee Klangfool's earlier posts.

Maxing 401k+ IRA at your ages (x2) is indeed a good thing and you are on the right track.
Assuming, you will be employed for the next 30 years with salary increases. That is a big IF for most people.
You also have to think about intermediate goals like, house, kids (and college), unemployment or disability etc.

60K per year is a LOT of savings for some, and not much to others, only you know your numbers. Save 25% is a good goal.
You should strive for balance living life and saving for the future, because you never know.

Appreciate the feedback. Our next biggest goal will be a kid in the near future and all the expenses that comes along with that. As of now, with only maxing our 401k and IRA, our savings rate is close to 30%. With the additional 10% contribution from my employer it's around 35%. My wife's employer offers no contribution. I agree with your statement of balanced living. That's essentially what I'm striving for.

DMB41 wrote: ↑Mon Jan 08, 2024 2:07 pm

KrisNC wrote: ↑Mon Jan 08, 2024 12:41 pmSee Klangfool's earlier posts.

Maxing 401k+ IRA at your ages (x2) is indeed a good thing and you are on the right track.
Assuming, you will be employed for the next 30 years with salary increases. That is a big IF for most people.
You also have to think about intermediate goals like, house, kids (and college), unemployment or disability etc.

60K per year is a LOT of savings for some, and not much to others, only you know your numbers. Save 25% is a good goal.
You should strive for balance living life and saving for the future, because you never know.

Appreciate the feedback. Our next biggest goal will be a kid in the near future and all the expenses that comes along with that. As of now, with only maxing our 401k and IRA, our savings rate is close to 30%. With the additional 10% contribution from my employer it's around 35%. My wife's employer offers no contribution. I agree with your statement of balanced living. That's essentially what I'm striving for.

DMB41,

A) 30% of what? Gross income? Net Income?

B) With or without a mortgage?

C) How many percents of current annual expense?

D) This is before kid. Expect the number to go down when the kid arrives.

Those are the questions that you need to ask and answer for yourself.

The big picture question is

Do you save enough to reach your financial goal?

If yes, you have no problem. Or else, you may need to do something else.

KlangFool

cjcerny wrote: ↑Mon Jan 08, 2024 1:45 pmIf you want to be able to retire before you can access your tax advantaged funds without penalty(likely 55 for your 401k and 59.5 for your IRA), you'll need to have some money saved that isn't in a tax advantaged account. But, yes, other than that, it is just that simple, as long are you are investing in index funds with the biggest chunk in stocks you can stand and can continue to max out your tax advantaged account contributions up until you have enough to retire--at least you'll have done your part--the rest is up to the markets.

A Roth conversion ladder would work too.

As you get to 50 and approach 55, a mix of a paid off mortgage and some non-retirement taxable would be better than everything in a 401k and Roth IRA. Also funds in an HSA help for medical expenses.

You can access the 401k with 72T (Trad IRA), but having $250k to $500k in taxable available gives you flexibility to manage income.

A paid off mortgage means you don't need as much income.

But, if you save enough in pre-tax and Roth, you can figure out how to make it work.

DMB41 wrote: ↑Mon Jan 08, 2024 10:09 amHello all,

I'm know this question has been asked before, but the search function is not bringing up this topic for whatever reason so apologies for the repeat question and please feel free to link me relevant topics.

My question is, I believe, quite straight forward: Is maxing out and contributing to only a 401k and an IRA "enough"?

A little more context: I was just playing around with some simulations on Portfolio Visualizer and did a very straightforward simulation with an 80/20 AA, starting balance of $250k (my approximate current investment balance), and monthly contributions (max divided by 12). I also assumed both DH and DW are maxing out both accounts (true for my case). I ran the simulation for a 30 year period.

The results, even for the 10th percentile, were very promising; hitting 1M in roughly 10 years and over 7M after 30. I know that what is considered "enough" varies wildly from person-to-person, but I have a hard time believing that the vast majority of Americans would not be comfortable with 7M after 30 years, myself very much included. When you factor in SS and any taxable investments made during those 30 years, the level of "comfortable" begins to skyrocket.

Is it that simple? What am I missing here?

I guess what spawned this question for me was the fact that DW and I have yet to contribute to any taxable accounts and it made me wonder how "far behind" it was or could be putting us. We've done well maxing out 401ks and IRAs the last few years, but haven't been able to begin contributing to a taxable. We're still young (28 and 30) so I was never truly concerned, just curious about the numbers. After running the above simulation, it makes me sort of wonder if there needs to be such a big emphasis on taxable for us? Can we afford to defer some/most/all of the money that would have gone to taxable on other things that we enjoy, such as travel/vacations, which we value the most, as long as we continue to max our 401k and IRA? To me the answer is obvious (absolutely yes), but again, I wanted to see if there was something I was missing?

To be clear, this is not a question or discussion regarding spending habits or anything like that. We have no debt other than a mortgage @ 2.75% and spend well below our means. We have no intention of actually spending every extra dollar instead of investing it. It is intended to be a thought experiment and I hope to learn some great information from you guys!

Thank you!

It is "enough" for people who will remain continuously employed and able to save that much until they are 60-65, and are able to get returns on par with historical returns, and then are able to live in retirement withdrawing from what is the inflation-adjusted equivalent of ~$3mm in today's dollars.

Saving that much is not "enough" if those same people might not be employed that long (at least at a level allowing for such savings), either from broader economic factors, or health issues, or industry changes, or personal preference. It is also not "enough" if $3mm is not enough to support their lifestyle, or if the markets over the next 30 years are not as kind as the markets were for the past 30 years.

The more you have saved the more flexibility and control you have, particularly with taxable accounts which don't need any hoops to be jumped through to access. Increased savings greatly accelerates financial independence, and FI doesn't require RE but it allows for a lot more options.

toddthebod wrote: ↑Mon Jan 08, 2024 3:57 pmIt depends. If you make $500,000/year, save ~$60,000 in two 401(k)s and two IRAs, pay $90,000 in income taxes, and spend $350,000, you're going to be in for a bit of a shock when you quit working.

Depends on returns and how long you work. If you have 500K now, get 5% returns, and work for 30 more years or so, you can cover your expenses or close to it.

I make more than that, and am able to save 85K pretax plus two Roths. I have calculated that if I work to FRA, maintaining 100% equity and achieving 5% returns, I will have more than 10M real, in retirement accounts. I am late 30s with 500K currently. No plans for FIRE. So the answer to the OP is it depends.

DMB41 wrote: ↑Mon Jan 08, 2024 10:09 amHello all,

I'm know this question has been asked before, but the search function is not bringing up this topic for whatever reason so apologies for the repeat question and please feel free to link me relevant topics.

My question is, I believe, quite straight forward: Is maxing out and contributing to only a 401k and an IRA "enough"?

A little more context: I was just playing around with some simulations on Portfolio Visualizer and did a very straightforward simulation with an 80/20 AA, starting balance of $250k (my approximate current investment balance), and monthly contributions (max divided by 12). I also assumed both DH and DW are maxing out both accounts (true for my case). I ran the simulation for a 30 year period.

The results, even for the 10th percentile, were very promising; hitting 1M in roughly 10 years and over 7M after 30. I know that what is considered "enough" varies wildly from person-to-person, but I have a hard time believing that the vast majority of Americans would not be comfortable with 7M after 30 years, myself very much included. When you factor in SS and any taxable investments made during those 30 years, the level of "comfortable" begins to skyrocket.

Is it that simple? What am I missing here?

I guess what spawned this question for me was the fact that DW and I have yet to contribute to any taxable accounts and it made me wonder how "far behind" it was or could be putting us. We've done well maxing out 401ks and IRAs the last few years, but haven't been able to begin contributing to a taxable. We're still young (28 and 30) so I was never truly concerned, just curious about the numbers. After running the above simulation, it makes me sort of wonder if there needs to be such a big emphasis on taxable for us? Can we afford to defer some/most/all of the money that would have gone to taxable on other things that we enjoy, such as travel/vacations, which we value the most, as long as we continue to max our 401k and IRA? To me the answer is obvious (absolutely yes), but again, I wanted to see if there was something I was missing?

To be clear, this is not a question or discussion regarding spending habits or anything like that. We have no debt other than a mortgage @ 2.75% and spend well below our means. We have no intention of actually spending every extra dollar instead of investing it. It is intended to be a thought experiment and I hope to learn some great information from you guys!

Thank you!

Enough for whom? For me, I’m good with just $20 in my pocket. I’ll make it last.

You're talking about roughly $60k between the two of you. Without doing any math at all I would say it should be more than enough unless you're making & spending gobs of money.

It's far more than we've ever saved, and we should be just fine.

snowday2022 wrote: ↑Mon Jan 08, 2024 6:17 pm

toddthebod wrote: ↑Mon Jan 08, 2024 3:57 pmIt depends. If you make $500,000/year, save ~$60,000 in two 401(k)s and two IRAs, pay $90,000 in income taxes, and spend $350,000, you're going to be in for a bit of a shock when you quit working.

Depends on returns and how long you work. If you have 500K now, get 5% returns, and work for 30 more years or so, you can cover your expenses or close to it.

I make more than that, and am able to save 85K pretax plus two Roths. I have calculated that if I work to FRA, maintaining 100% equity and achieving 5% returns, I will have more than 10M real, in retirement accounts. I am late 30s with 500K currently. No plans for FIRE. So the answer to the OP is it depends.

Maybe you misunderstood what I was saying. For someone earning $500,000, spending $350,000, and saving $60,000, 5% real returns will leave them with about 40% of their current spending available after 30 years.

But even in your case, if you continue to need $400,000+ to meet expenses, your $10M real in mostly pre-tax savings isn't going to cut it.

toddthebod wrote: ↑Mon Jan 08, 2024 6:48 pm

snowday2022 wrote: ↑Mon Jan 08, 2024 6:17 pm

toddthebod wrote: ↑Mon Jan 08, 2024 3:57 pmIt depends. If you make $500,000/year, save ~$60,000 in two 401(k)s and two IRAs, pay $90,000 in income taxes, and spend $350,000, you're going to be in for a bit of a shock when you quit working.

Depends on returns and how long you work. If you have 500K now, get 5% returns, and work for 30 more years or so, you can cover your expenses or close to it.

I make more than that, and am able to save 85K pretax plus two Roths. I have calculated that if I work to FRA, maintaining 100% equity and achieving 5% returns, I will have more than 10M real, in retirement accounts. I am late 30s with 500K currently. No plans for FIRE. So the answer to the OP is it depends.

Maybe you misunderstood what I was saying. For someone earning $500,000, spending $350,000, and saving $60,000, 5% real returns will leave them with about 40% of their current spending available after 30 years.

But even in your case, if you continue to need $400,000+ to meet expenses, your $10M real in mostly pre-tax savings isn't going to cut it.

I got 6.4M for the first scenario. If you are 65 with SS, you probably could annually draw 350K or close to it and be OK.

Second scenario, similar. It will pretty much cover things with SS. Of course my expenses are nowhere near 400K, and my savings are much higher.

Anyway, I don’t disagree with your broader point to keep expenses in check. I’m just saying, if you save a ton for many years and get good returns and retire at a normal age, you can maintain a pretty expensive lifestyle possibly indefinitely. Using just a 401K and IRA and index funds.

snowday2022 wrote: ↑Mon Jan 08, 2024 7:57 pm

toddthebod wrote: ↑Mon Jan 08, 2024 6:48 pm

snowday2022 wrote: ↑Mon Jan 08, 2024 6:17 pm

toddthebod wrote: ↑Mon Jan 08, 2024 3:57 pmIt depends. If you make $500,000/year, save ~$60,000 in two 401(k)s and two IRAs, pay $90,000 in income taxes, and spend $350,000, you're going to be in for a bit of a shock when you quit working.

Depends on returns and how long you work. If you have 500K now, get 5% returns, and work for 30 more years or so, you can cover your expenses or close to it.

I make more than that, and am able to save 85K pretax plus two Roths. I have calculated that if I work to FRA, maintaining 100% equity and achieving 5% returns, I will have more than 10M real, in retirement accounts. I am late 30s with 500K currently. No plans for FIRE. So the answer to the OP is it depends.

Maybe you misunderstood what I was saying. For someone earning $500,000, spending $350,000, and saving $60,000, 5% real returns will leave them with about 40% of their current spending available after 30 years.

But even in your case, if you continue to need $400,000+ to meet expenses, your $10M real in mostly pre-tax savings isn't going to cut it.

I got 6.4M for the first scenario. If you are 65 with SS, you probably could annually draw 350K or close to it and be OK.

Second scenario, similar. It will pretty much cover things with SS. Of course my expenses are nowhere near 400K, and my savings are much higher.

Anyway, I don’t disagree with your broader point to keep expenses in check. I’m just saying, if you save a ton for many years and get good returns and retire at a normal age, you can maintain a pretty expensive lifestyle possibly indefinitely. Using just a 401K and IRA and index funds.

Obviously social security makes a difference, as do things like kids done with college and a paid off house.

But check your math, a $60,000 annual savings with 5% growth rate gives you a hair under $4M after 30 years.
=fv(0.05,30,60000) in Excel/Sheets

toddthebod wrote: ↑Mon Jan 08, 2024 8:24 pm

snowday2022 wrote: ↑Mon Jan 08, 2024 7:57 pm

toddthebod wrote: ↑Mon Jan 08, 2024 6:48 pm

snowday2022 wrote: ↑Mon Jan 08, 2024 6:17 pm

toddthebod wrote: ↑Mon Jan 08, 2024 3:57 pmIt depends. If you make $500,000/year, save ~$60,000 in two 401(k)s and two IRAs, pay $90,000 in income taxes, and spend $350,000, you're going to be in for a bit of a shock when you quit working.

Depends on returns and how long you work. If you have 500K now, get 5% returns, and work for 30 more years or so, you can cover your expenses or close to it.

I make more than that, and am able to save 85K pretax plus two Roths. I have calculated that if I work to FRA, maintaining 100% equity and achieving 5% returns, I will have more than 10M real, in retirement accounts. I am late 30s with 500K currently. No plans for FIRE. So the answer to the OP is it depends.

Maybe you misunderstood what I was saying. For someone earning $500,000, spending $350,000, and saving $60,000, 5% real returns will leave them with about 40% of their current spending available after 30 years.

But even in your case, if you continue to need $400,000+ to meet expenses, your $10M real in mostly pre-tax savings isn't going to cut it.

I got 6.4M for the first scenario. If you are 65 with SS, you probably could annually draw 350K or close to it and be OK.

Second scenario, similar. It will pretty much cover things with SS. Of course my expenses are nowhere near 400K, and my savings are much higher.

Anyway, I don’t disagree with your broader point to keep expenses in check. I’m just saying, if you save a ton for many years and get good returns and retire at a normal age, you can maintain a pretty expensive lifestyle possibly indefinitely. Using just a 401K and IRA and index funds.

Obviously social security makes a difference, as do things like kids done with college and a paid off house.

But check your math, a $60,000 annual savings with 5% growth rate gives you a hair under $4M after 30 years.
=fv(0.05,30,60000) in Excel/Sheets

In that scenario I had assumed starting with 500K. I believe this accounts for our discrepancy.

DMB41 wrote: ↑Mon Jan 08, 2024 10:09 amHello all,

I'm know this question has been asked before, but the search function is not bringing up this topic for whatever reason so apologies for the repeat question and please feel free to link me relevant topics.

My question is, I believe, quite straight forward: Is maxing out and contributing to only a 401k and an IRA "enough"?

A little more context: I was just playing around with some simulations on Portfolio Visualizer and did a very straightforward simulation with an 80/20 AA, starting balance of $250k (my approximate current investment balance), and monthly contributions (max divided by 12). I also assumed both DH and DW are maxing out both accounts (true for my case). I ran the simulation for a 30 year period.

The results, even for the 10th percentile, were very promising; hitting 1M in roughly 10 years and over 7M after 30. I know that what is considered "enough" varies wildly from person-to-person, but I have a hard time believing that the vast majority of Americans would not be comfortable with 7M after 30 years, myself very much included. When you factor in SS and any taxable investments made during those 30 years, the level of "comfortable" begins to skyrocket.

Is it that simple? What am I missing here?

Retire by 40 updates his blog post every January (he hasn't done it yet this year, but it is coming) so you can see the example of "what if you always maxed out your 401k" (his example does not include any employer match, no catch up contributions for age 50+ crowd, and is 100% S&P 500).

https://retireby40.org/what-if-always-maxed-401k/

Throw in the employer match + if you are doing a Roth IRA as well, and well - time and compounding has been kind in the past for those who were able to sock it away year in and year out throughout their working decades.

CyclingDuo

DMB41 wrote: ↑Mon Jan 08, 2024 2:07 pmAs of now, with only maxing our 401k and IRA, our savings rate is close to 30%. With the additional 10% contribution from my employer it's around 35%.

For my two cents, your 35% savings rate is more relevant in figuring out if you are saving "enough".

The general recommendation is a minimum of 15% - 20%.

The other relevant factor is time. Someone saving 15%+ over their their working career is likely going to have "enough". Those who don't start saving until later in life likely require much higher savings rates.

So if you've been saving 15%+ throughout the majority of your working years, now into the 35% range, you are likely saving enough. And definitely are saving vastly more than the average American.

But again, back to time... The 15%+ recommendation is based on a "normal" working career with retirement at 65+. If you are interested in FIRE, you may have less time available - thus may need to increase your savings rate. But you'll need to figure out your target FIRE date to figure out the required savings rate to reach that goal.

Note the savings % is unrelated to the $$ amounts or where saved... For someone in a lower income - they likely won't fill up their tax-advantaged space. For someone in higher income, they'll need to save more than fits in a tax-advantaged space. That's why a "savings %" is more useful that a $ amount such as "maxing out a 401k and IRA".

KlangFool wrote: ↑Mon Jan 08, 2024 3:16 pmDMB41,

A) 30% of what? Gross income? Net Income?

B) With or without a mortgage?

C) How many percents of current annual expense?

D) This is before kid. Expect the number to go down when the kid arrives.

Those are the questions that you need to ask and answer for yourself.

The big picture question is

Do you save enough to reach your financial goal?

If yes, you have no problem. Or else, you may need to do something else.

KlangFool

30% of gross, with a mortgage (370k @ 2.75%). I'm fully aware the savings rate will drop with a kid(s). I'm not interested in getting into the detailed expense numbers in this thread, but we spend well below our means. Just some rough numbers for reference here: ~200k annual gross income (before 401k contributions) and ~50k expenses + max 2x Roth IRAs. MCOL area. So not very high earners (relative to this board) or high spenders or in an expensive city.

My financial goal is to save as much as we can while still enjoying life. I think this is the same sentiment many BHs follow as well. Retirement is too far away for me to have any desire to set a specific dollar amount or anything like that. Too many variables over the next few decades.

CyclingDuo wrote: ↑Tue Jan 09, 2024 8:06 amRetire by 40 updates his blog post every January (he hasn't done it yet this year, but it is coming) so you can see the example of "what if you always maxed out your 401k" (his example does not include any employer match, no catch up contributions for age 50+ crowd, and is 100% S&P 500).

https://retireby40.org/what-if-always-maxed-401k/

Throw in the employer match + if you are doing a Roth IRA as well, and well - time and compounding has been kind in the past for those who were able to sock it away year in and year out throughout their working decades.

CyclingDuo

I'll check this out. Sounds very relevant and interesting, thanks!

SnowBog wrote: ↑Tue Jan 09, 2024 9:11 amFor my two cents, your 35% savings rate is more relevant in figuring out if you are saving "enough".

The general recommendation is a minimum of 15% - 20%.

The other relevant factor is time. Someone saving 15%+ over their their working career is likely going to have "enough". Those who don't start saving until later in life likely require much higher savings rates.

So if you've been saving 15%+ throughout the majority of your working years, now into the 35% range, you are likely saving enough. And definitely are saving vastly more than the average American.

But again, back to time... The 15%+ recommendation is based on a "normal" working career with retirement at 65+. If you are interested in FIRE, you may have less time available - thus may need to increase your savings rate. But you'll need to figure out your target FIRE date to figure out the required savings rate to reach that goal.

Note the savings % is unrelated to the $$ amounts or where saved... For someone in a lower income - they likely won't fill up their tax-advantaged space. For someone in higher income, they'll need to save more than fits in a tax-advantaged space. That's why a "savings %" is more useful that a $ amount such as "maxing out a 401k and IRA".

I definitely understand what you are saying here and it is what makes me feel comfortable with our current savings. Like you said, the 15%+ SR is for a "normal" or what I would think of as statistically average career. I.E. - based on the average American's income over an average working career length. We save over 30% AND make well over the average American household income. So, compared to the average, we our obviously doing great, but like others have said, it "depends" on our specific lifestyle and financial goals, not necessarily the average, and I understand that. Like I mentioned above, my financial goal is only defined as saving as much as we can while still enjoying life. The hope is that this goal will treat me well in 20-30 years and I think it will.

DMB41 wrote: ↑Tue Jan 09, 2024 9:55 am

SnowBog wrote: ↑Tue Jan 09, 2024 9:11 am...
Note the savings % is unrelated to the $$ amounts or where saved... For someone in a lower income - they likely won't fill up their tax-advantaged space. For someone in higher income, they'll need to save more than fits in a tax-advantaged space. That's why a "savings %" is more useful that a $ amount such as "maxing out a 401k and IRA".

I definitely understand what you are saying here and it is what makes me feel comfortable with our current savings. Like you said, the 15%+ SR is for a "normal" or what I would think of as statistically average career. I.E. - based on the average American's income over an average working career length. We save over 30% AND make well over the average American household income. So, compared to the average, we our obviously doing great, but like others have said, it "depends" on our specific lifestyle and financial goals, not necessarily the average, and I understand that. Like I mentioned above, my financial goal is only defined as saving as much as we can while still enjoying life. The hope is that this goal will treat me well in 20-30 years and I think it will.

Be cautious with that AND above...

My point about savings rate % is that it's arguably independent of the underlying amount earned. (Ignoring obvious exceptions - like those who earn below the poverty line and struggle to save.)

So it's a positive thing that you are saving over 2X the "recommend" level of savings.

But counting that - and that you make a higher income may not be the wisest combination... Often, those who make more - spend more. So making more then an average family sorta washes out if you spend more than an average family. (Or worse, with progressive tax rates, your overall spending might be even higher when adjusted for higher taxes.)

But to me, this comes back to the savings rate - and time.

As an example, let's say a doctor in a specialized field earns $1M annually. They are clearly above the "average" income. But if they have a low savings rate - it's irrelevant - as they won't be able to sustain their lifestyle (unless they can work forever).

Conversely, you have the "millionaire next door" types who might earn at - or below - an "average" income, but who are diligent savers. They might end up leaving behind massive estates that no one would have expected. viewtopic.php?t=420880

Or yourself... Again, with a 35% savings rate, you are arguably doing great - especially if you plan to work a "normal" career. If you have adequate life/disability insurance, and aren't in niche fields that are at risk of longterm unemployment, you are likely very well covered. But - if you decide that you want to retire in say 5-10 years, your 35% SR may no longer be enough to meet that goal...

IMHO always comes back to savings rate and time (not a specific $ saved).

To expand on my last post, if you haven't seen this (or something like it), this may be helpful: https://www.mrmoneymustache.com/2012/01 ... etirement/

Specifically this table

Starting from $0, a 35% savings rate means working roughly 25 years... If you started work at 25, that means working until 50 (give or take).

If your want to retire quicker/sooner, your savings rate needs to go up (which also makes your expenses go down - both speed things up).

KlangFool wrote: ↑Mon Jan 08, 2024 11:44 am... equal to saving 1 year of current annual expense, it is enough.

@KlangFool's "save 1 years expenses" recommendation is basically the 50% rate, which translates to 17 working years. Personally, I think that's a great aspiration, but likely excessive for most people. But then again, KF also cautious about the impacts of unemployment - potentially repeated unemployment, and about "ageism" and struggling to find work after 50. So that 17 "working" years might happen over 25+ years, as you may not be continuously employed. Likewise, those who went on to get post-graduate degrees and/or just started "adulting"/retirement savings late in life might be well advised to compress their timeline.

Again, comes back to savings rate and time.

If your plan only works if you are continously employed, you would be wise to revisit that assumption and either work towards a sooner target and/or establish flexibility in your budget. If your plan works, even with a disruption in work, then you are in excellent shape.

If you are used to spending most of your income on your current lifestyle, then the whole save 20% rule comes into play. Assuming you started early enough. Thus, if the maximum contribution for 401k & IRA is equal to or greater than 20% of your take home pay, then after 30 years you should have enough to retire on and maintain your lifestyle for about 30 years.

That's my rough rule based on doing a lot of sims. See https://portfoliocharts.com/charts/savings-rates/

Now, most people don't have a $150k gross or even take home pay, so for the vast majority of people contributing the max is well beyond the 20% savings rate, but if you make more than that per person, then you need to also look into taxable savings as well.

IMO.

It's gracious plenty for me, but I've had extraordinary sequence of returns, and my cost of living is not that high. Those are the two factors.

A third factor is what the true limits are throughout your career and there are lots of various people making rules. When I started we were limited to 15% of salary and that was all I could do. Roth IRA wasn't even invented for another 10 years. These days there are ways of going over the max, so you have to consider what is your definition of maxing it out.