How many in pre-retirement make catch-up contributions to 401K

[brianl703]

Sorry to hear it. Disagreement over money is unfortunately a big cause of family strife.

It sure is. It's been going on for YEARS. When I was a kid, in the 80s, my dad would not allow her to have a joint checking account with him. She had her own account and he'd write her a check once a week. She always complained that the amount ($150 in 1986 dollars; $407 in today's dollars; that's WEEKLY) wasn't enough. I can sort of guess what happened that lead my dad to conclude that a joint checking account was not a good idea...

Her latest grand idea is that she can use the extra COLA increase in her SS payments to get herself a new car.

 

[zzyzzx]

I would have to assume that anyone who can, does. No reason not to max out on the 401K.

 

[JHZR2]

We agree that it’s a huge problem.

But it’s a problem because people don’t save. The only barriers are ignorance and discipline.

Addressing it through education, improving financial literacy, would be helpful.

I would feel a lot more empathy for those “just trying to get by” if they didn’t have newer cars than I do. Most folks “just trying to get by” have atrocious spending habits, and make big financial mistakes.

If someone “just trying to get by” is driving a 20+ year old Ford, with roll up windows, no AC, no power steering, and drum brakes, like I did, decades ago, in order to have enough money to invest, then I would have a lot more empathy.

Most Americans “just trying to get by” actually have incredible wealth, and live in incredible luxury, compared with the rest of the world.

They have bought the message that they “deserve” or “need” those luxuries, and the pernicious lie that their failure to exercise financial discipline isn’t their fault.

Agree, and those atrocious spending habits allow everything to rise unnaturally in price, or perhaps, it rises naturally to demand, but to a level of demand that should not be.

And sure, it’s their “choice” to do things that are effectively unsustainable, until it becomes my cost to bail them out or foot the bill… and worse when people have the audacity to put that on my kids.

 

[Astro14]

I would have to assume that anyone who can, does. No reason not to max out on the 401K.

Unfortunately- that assumption is nowhere close to accurate.

Most people with a 401(k) do far less than max it out. The average contribution rate is something like 7%.

 

[Passport1]

Circumstances can affect outcomes

That's the pearl here.

Many of you young guys are whistling past the grave yard. When the government (overspent for decades) can't cover the country's debt the economy will crash, your plans will be crushed. No, I don't have the solution, many of my generation caused this and I offer my sincere apologies for that.

Is a course correction possible? I don't know, hope so. It's up to you.

 

[tbm5690]

The average contribution rate is something like 7%.

I'm assuming that's total, including employer match? If that's individual only I'd be surprised and expect it to be lower.

 

[ATex7239]

Unfortunately- that assumption is nowhere close to accurate.

Most people with a 401(k) do far less than max it out. The average contribution rate is something like 7%.

And that is being generous for some. I know a handful of high earning couples who are pulling well over 250K (inferring based on professions) and almost all of them save zero. I think one or two do the company match. Big houses, expensive dinners and vacations, new cars and nothing in the bank. If they did just the average 7% and never touched it, they’d be more than fine.

 

[brianl703]

I'm assuming that's total, including employer match? If that's individual only I'd be surprised and expect it to be lower.

Seems like a 6% match is common, which means you need to contribute 6% for a total 12% to get the maximum match.

 

[99Saturn]

The average contribution rate is something like 7%.

I'm assuming that's total, including employer match? If that's individual only I'd be surprised and expect it to be lower.

I'd assume that stat is, of those that have a 401k available to them, and contribute to it, the average savings rate is 7% for personal contribution.

7% makes sense to me, most probably set up for whatever the company match is if they opt to set up, which as brian703 said is usually around 6%. Those that are contributing in excess of the company match skew the number up but only slightly.

 

[Donald]

I agree with your game plan to contribute up to employer match, then max out Roth.

Over the last 20 years I’ve asked about 100 different people if they contribute to an IRA. As expected 95% had no idea what an IRA was and their 401K was the only retirement plan they contributed to…… which is still a very good way to save for retirement.

I convinced a colleague at work to open up and max out 2 Roth IRAs for him and his wife that’s a stay a home mom.

Last time I checked I could not contribute to an IRA since I was contributing to a 401K. May have been my salary though.

 

[99Saturn]

Last time I checked I could not contribute to an IRA since I was contributing to a 401K. May have been my salary though.

401K shouldn't stop someone from contributing to an IRA. There's income limits to Roth IRAs and the tax deductible portion of a traditional IRAs but one can still make a contribution to an IRA up to the contribution limit with post-tax dollars even if over these income limits. Basically the "setup" portion of doing a backdoor Roth IRA.

From there one can roll to a Roth (backdoor Roth or one could leave the money there and let it grow tax deferred as well.

 

[Donald]

401K shouldn't stop someone from contributing to an IRA. There's income limits to Roth IRAs and the tax deductible portion of a traditional IRAs but one can still make a contribution to an IRA up to the contribution limit with post-tax dollars even if over these income limits. Basically the "setup" portion of doing a backdoor Roth IRA.

From there one can roll to a Roth (backdoor Roth or one could leave the money there and let it grow tax deferred as well.

Ok, I was interested in a tax deductible IRA and I could not do that.

 

[Astro14]

Ok, I was interested in a tax deductible IRA and I could not do that.

Me neither.

 

[javacontour]

Seems like a 6% match is common, which means you need to contribute 6% for a total 12% to get the maximum match.

Assuming the match is 1:1
My employer matches the first 6% but only gives you $0.50 for each dollar you contribute. Therefore, in your scenario, the match would be an additional 3% not 6%
YMMV as different employers have different plans.
I have to say, we have some quality options of where to put the money.
Just because you have a 401(k) doesn't mean you have quality options for investment.

 

[Revving2Redline]

My mom maxed out her TSP and went beyond that before retirement from the federal courts. My daughter is doing a great job even though she's in the e-4 mafia as a Marine. My IRA got maxed out by my grandmother and I have only less than 1300.00 or less I owe to Bank of America. I can stand debt 😆. I pretend to be Italian and pay it off to avoid finger extremities lost.
Some of you here have done a great job preparing. I enjoyed reading the posts and reasoning.

 

[Sam_Julier]

We always contributed and budgeted for the maximum allowed. In 401k, 403b and Roth IRA.

My wife retires on Tuesday, January 31 after working for 22 years at Yale University.

Looking book I’m grateful we contributed the maximum allowed.

 

[Dave Hess]

We always contributed and budgeted for the maximum allowed. In 401k, 403b and Roth IRA.

My wife retires on Tuesday, January 31 after working for 22 years at Yale University. Looking book I’m grateful we contributed the maximum allowed.

I takes discipline to max out everything and retire without any financial worries.

 

[BMWTurboDzl]

For some income levels maxing out a 401k over the company match is probably not a good idea because their retirement tax bracket will not be lower than the bracket they're currently in. This is where a Roth comes in

Unfortunately it's a shame that there are any contribution to begin with

 

[Dave Hess]

For some income levels maxing out a 401k over the company match is probably not a good idea because their retirement tax bracket will not be lower than the bracket they're currently in. This is where a Roth comes.

Unfortunately it's a shame that there are any contribution to begin with

I agree with Roth….. but they have a very silly low contribution limit.
Roth should have a $25,000 contribution limit in the year 2023.

*** Edit ***
IRA (Roth or Traditional) $25K limit
401K, 403B, Thrift Savings $40K limit

 

[supton]

I’m not surprised at the limit for Roth—a wise 25-30 year old could park huge amounts in their first few years of life, then reap 30 years of growth (or more). Uncle Sam wants his unfair share and all—can’t have people getting untaxed money, that’s unfair (to Sam).

[Not sure I disagree actually, taxes do pay for things I like, like paved roads and stuff.]