Wednesday, April 19, 2006

Maxing Out Your 401K and IRA, Rational?

My friend always brings up this topic, and debating it with him is like trying to debate which came first, the chicken or the egg. In my opinion, if you don't need the money now, put it away whatever you can afford to for retirement. Makes sense right? But my friend believes that, sure you should put away for retirement, but just the minimum to get matching, why? Because he doesn't believe it's wise to lock up all that money for something you don't even know you'll be around for. He does have a point. What if all this money we're saving for retirement just doesn't come around? I know, how depressing is that...but what if? It's important to consider it. So, there is a balance point, and it seems like that point is very unique to each individual. I myself try to put away whatever I can up to the federal limit...might as well. What do you do? Do you max out your retirement contribution?


TADollar said...

Statistically-speaking, odds are pretty good that most of us will reach old age. Question is whether you want to have savings to tap, or be poor and live off social security (if it's around) and handouts. We max out all tax advantaged accounts available to us. My employer doesn't offer a 401K, but my husband just opened a self 401K. Before that, he had a SEP-IRA. If we aren't around to use this money, it will go to loved ones who can. We live life to its fullest, and still manage to sock away savings. I can't think of a better way to spend it then reserve it for our future.

LAMoneyGuy said...

As TADollar mentioned, most of us will make it to retirement age. Besides, it's simply smarter to plan for the future, but enjoy today. If he's so concerned, he should get the match on the 401k, and make his max roth contribution. He can take his principal out of his roth ira at any time without penalty.

Let him know that he's welcome to save outside of retirment plans, and he'll still be doing better than the majority of the population. But he will be forgoing a lot of tax benefit.

LAMoneyGuy said...

I thought more about this. Your friend is a fool. Why does he buy anything? Why not rent? Why work? Why save anything? Learn to be a great bartender, and travel the world, stopping over to tend bar for a few months each city at a time. Max out your credit cards while you're at it.

Why exercise? Why eat healthy? You could forgo the juicy steak for the grilled fish or salad, and get hit by a bus tomorrow, and what good did it do you?

I would say that your friend is just trying to be one of those naysayer contrarians, but if he really isn't saving in a Roth, well, I don't know.

Anyway, if he's a good friend, then I'm sorry if I unsulted him. But I just can't understand reasoning like this.

freedumb said...

No, not insult taken...I think your argument is very reasonable. I think it does make sense to put as much as possible away for retirement...match and tax advantages alone are enough reason. But it's not like this money is permanently locked away until can still take it out if it just makes sense all around...anyway, I don't plan on talking about retirement with him very often :) Yes, he is a good friend...we just don't agree on this point. TADollar, yeah I can't think of a better way to spend money either! Saving for the purchase ever!