Personal Finance Financial Planning & Investing

[BamaNation]

401K - TO ROLL OR NOT TO ROLL, THAT IS THE QUESTION
The only substantive thing I'll add to 4Q's excellent breakdown is that 401k's have some legal protections that IRA's may not so just make sure you understand the options available and the "consequences/benefits" of choosing any particular action. Also, new for 2025 if your wife is 60-63 she can max the 403b at $34,750 instead of $31,000.

Here is some great info on 403b's:

• https://www.whitecoatinvestor.com/403b/
• https://www.bogleheads.org/wiki/403(b)

MATCHING/MAXING/MERGING
As 4Q notes, contribute at least up to the company match if at all possible and then up to the IRS limits if you can. I will say when we first started maxing everything we could, it was a bit of a shock to our system, and required some re-thinking about cashflow, purchases & timing, etc. but now, I'm very happy we have done so for all these years !

I have a 403b and a 457b. My wife has 401k. She also has a 401k from her old firm from 10+ years ago. We chose to not roll it over to the current 401k b/c it gave us much lower fees for a decent chunk of our allocation. We may merge this year as both 401ks now have Fidelity as custodian and they have already proven to be competent and capable - very important points 4Q emphasizes. I have also considered funding a solo 401k but haven't yet pulled the trigger.

ALL ACCOUNTS ALLOCATION
As I have mentioned before we use an "all accounts" allocation philosophy. We decide what we want our overall allocation across all accounts (Roth IRAs, 401k, 403b, 457b, HSA, etc.), to be and then figure out the most efficient / best / least cost account to hold particular assets depending on what's available in all accounts.

BACKDOOR ROTH IMPACT ON IRAs
Also, if you're a candidate for doing a backdoor Roth, then you need to not have funds in an IRA. If considering this, note the Cautions section in that link which explains the details. WhiteCoatInvestor.com also has a step-by-step process on how to do it.

(I realize some of this may not apply to you / your wife's particular situation. Details/links provided for others who may have changes coming in 2025, as well)

 

[AlistarWills]

I’ve seen HSA’s mentioned several times. We actually have one now (and try to kick in all we can) because we more or less got forced on to a HDHP insurance plan. Is there a way to have a HSA outside of a HDHP? We have the option of getting affordable “real” health insurance again and it seems we have to give up the HSA if we take it. The HSA is a useful thing except the HDHP pays for absolutely NOTHING till you hit deductible which means the insurance doesn’t kick in unless you’ve got something really bad or have surgery at which point you empty the HSA.

 

[AlistarWills]

Your wife has the option of rolling over the existing 401(k) into an IRA. Depending on the terms of the sale, she might or might not be able to keep her existing 401(k) investment allocation.

If she can keep existing money in the 401(k), I would suggest evaluating the 403(b)'s investment options vs. those in the 401(k), and make the decision to (1) go with the new choices, or (2) roll the existing money into a self-managed IRA accordingly.

Going forward, for new money contributed, she will need to make investment choices from what the new 403(b) offers. Those choices and associated fees might be better than the former plan, or they might not be as good.

Either way, unless you're stuck with options consisting of only annuities or funds with nasty high fees, I'd suggest putting as much as you can into the 403(b) to take advantage of the pre-tax treatment of new contributions.

For reasons discussed earlier in this thread, I'd suggest contributing as much as you possibly can. You're not "maxed out" at the point at which the new employer ceases to match contributions. You're maxed out at $23,500 annual contributions if your wife is under 50, or $31,000 if she's 50 or older.

She can also make annual contributions into a regular IRA of up to $7,000 if under 50, or $8,000 if 50 or older. Depending on income, the contributions to an IRA could be pre-tax dollars or post-tax dollars.

The second most important thing, behind only keeping on investing, is this: If you do decide to roll over the 401(k) balance into a self-managed IRA, be sure neither you nor your wife touch the money in the process of the transition. It should go straight from the existing 401(k) into the IRA.

If the money is in your personal name at any point in the transition, you haven't rolled over the balance....you've taken a distribution. And if you take a distribution, you trigger all sorts of tax consequences and penalties. So I'd strongly suggest doing that with a knowledgeable broker who does it all the time. I personally use Schwab, but any number of nationally-recognized names can do it as well.

If we choose to rollover, does that amount count as/toward the yearly contribution limits?

 

[bamaga]

This may be counter to the idea of this thread, so I believe we may need a thread for casual / day traders. I enjoy the stock market like some go to casinos . BTW, I have enjoyed an 18 % ROI since I started in August. I would like to talk about things this thread probably shouldn’t cover, like self directed accounts or crypto or speculation on IPO’s .

 

[4Q Basket Case]

If we choose to rollover, does that amount count as/toward the yearly contribution limits?

Good question. The answer is no, it doesn't. Your contributions are entirely separate from the rollover.

Regarding your question on an HSA, a man's gotta know his limitations, and I don't know.

Another poster might, or you might be able to research it. If you have an accountant or other financial advisor, that person will definitely know.

 

[4Q Basket Case]

Thought I'd expand on two strategies that almost anybody can execute, but almost nobody does.

Either can have a huge impact on your financial position heading into retirement. Together, they can make your golden years truly golden.

Truly Maxing Out 401(k) or 403(b) Contributions
Above I mentioned maxing out your 401(k) / 403(b) contributions. Most of the people you heard at holiday parties holding forth on how they "maxed out" their 401(k) are talking about maxing out their employer's match.

That's a nice start. But for the vast majority of us, it's nowhere near enough for a comfortable retirement.

You need to max out the legal limit -- currently $23,500 up to age 50, $31,000 from age 50 to 60, and $34,750 from age 60 to 63 (thanks on that point, @BamaNation...I wasn't aware of that new provision).

If you're early in your investing life, I know $23,500 seems an impossibly high number. And for most 30-year-olds, it is. But it doesn't have to be in your mid-40s. Here's how Mrs. Basket Case and I did it.

1. Have an honest conversation about needs vs. wants. You have to eat. You don't have to take the family out to dinner 3-4 times a week. You need a reliable car. You don't need a tricked-out electric F-150 new off the lot. You need a social life. You don't need a $500 a month country club membership, with a $2,500 set of golf clubs, plus 10 rounds a month of golf cart fees, Nassau bets and 19th hole tabs. You need time off to re-charge. You don't need 10 days at Disney World staying at the Grand Floridian, eating at Victoria and Albert's.

2. After completing a tough assessment of needs vs. wants vs. income, start off with as much as you can make room to contribute.

Remember that your contributions are in pre-tax dollars. IOW, Uncle Sam pays part of your contribution. Suppose you're in the 28% tax bracket, and you put in $200 a paycheck. Your take-home is only $144 less than if you had contributed nothing at all. Yet your 401(k) balance goes up $200, plus whatever match your employer makes.

Depending on your tax bracket and your employer's match, your first-year returns on each year's new money can easily reach well over 100%, maybe even 200%.

You can't get anywhere remotely approaching that return anywhere else, and are leaving tons of money on the table if you don't take advantage of this.

3. This is the hard part and it takes discipline. Every raise, whether through annual salary increases or promotions, goes into the 401(k). And you keep on doing that for as long as it takes you to reach the legal max.

I won't lie -- it's no fun. I didn't have a take-home raise for 8 solid years. But when I finally did, it was fantabulously glorious.

Plus, as BamaNation alludes, after 2-3 months, it kind of gets baked into your monthly cash flow and it's not as painful as you might imagine.

4. Keep on maxing out until the day you retire. The legal max increases every few years, so you'll have to increase accordingly. Believe me, your retired self will thank your young self every single day.

Pay Off Your Mortgage Early
Currently, 30 year mortgage rates are about 7%. So for a $250K mortgage, that works out to principal and interest of $1,663. Over 30 years, you pay 360 x $1,663 = $598,680.

Note: This is principal and interest only. It doesn't include taxes and insurance.

Suppose you want to be done in 20 years. A lot of people think you'd have to pay 1.5x your 30 year payment. You don't. First, the 20 year interest rate is a bit lower (6.5% or so today). Second, exponential arithmetic works in your favor.

Together, that means that a $250K mortgage at 6.5% for 20 years works out to a payment of $1,863. Over 20 years, you pay $447,120 -- a savings of over $150,000. And 10 fewer years of making payments.

One neat trick: You can pay more than the required payment on your mortgage. If you do that, the extra reduces the outstanding principal. On a 30 year mortgage at today's rates, that's a guaranteed return of 7%.

Where else are you going to find a mathematically guaranteed return of 7%?

Mrs. Basket Case and I did this:
1. We started with a goal of being finished with mortgage payments after 15 years.
2. We agreed that we might trade up houses over time, but 15 years from the original start date, we'd be done.

So suppose 3 years into the plan, we had our eye on a new house. We'd have to have that house paid off in 12 years -- 15 years from the original start date, less 3 years elapsed time. If we couldn't afford that, we couldn't afford the house.

3. We actually had mortgage notes on a 25 year amortization schedule. But we took advantage of the option to pay more. So we paid on a 15 year schedule -- or 12, or however many years we had left on the original plan when we bought the new house.

The cool thing about that was it gave us the flexibility to drop back to the lower contractually required payment in the event of a no-foolin' emergency. Sure, the interest rate was a tick higher, but not much. We just figured it was the price of having the flexibility if we needed it.

We were fortunate that we never had to use that option. But the fact that it was there was a source of peace of mind.

Both of these plans require discipline. You have to watch your friends have a big time spending, spending, spending, hear them brag about their stuff or where they just ate or went on vacation, and listen to them laugh and shake their heads at you.

Then one evening when you're a few months from retirement, you'll be at some cocktail party. You're talking about your plans, and they're moaning about having to work forever. They ask how you did it, and you tell them the two points above -- max out tax-advantaged retirement plans and pay off the house early. They'll look at you like you have three heads and say, "I remember you talking about that...but you really did it?!?"

It's sad to watch their faces as they realize that they're too far along in life to get their finances in order to retire in the way they want. I also have to confess to a bit of schadenfreude when I remember how much they mocked what the Basket Cases were doing.

Of all the assets you have as a young person, time is both the most valuable and the most perishible.

 

[Padreruf]

Thought I'd expand on two strategies that almost anybody can execute, but almost nobody does.

Either can have a huge impact on your financial position heading into retirement. Together, they can make your golden years truly golden.

Truly Maxing Out 401(k) or 403(b) Contributions
Above I mentioned maxing out your 401(k) / 403(b) contributions. Most of the people you heard at holiday parties holding forth on how they "maxed out" their 401(k) are talking about maxing out their employer's match.

That's a nice start. But for the vast majority of us, it's nowhere near enough for a comfortable retirement.

You need to max out the legal limit -- currently $23,500 up to age 50, $31,000 from age 50 to 60, and $34,750 from age 60 to 63 (thanks on that point, @BamaNation...I wasn't aware of that new provision).

If you're early in your investing life, I know $23,500 seems an impossibly high number. And for most 30-year-olds, it is. But it doesn't have to be in your mid-40s. Here's how Mrs. Basket Case and I did it.

1. Have an honest conversation about needs vs. wants. You have to eat. You don't have to take the family out to dinner 3-4 times a week. You need a reliable car. You don't need a tricked-out electric F-150 new off the lot. You need a social life. You don't need a $500 a month country club membership, with a $2,500 set of golf clubs, plus 10 rounds a month of golf cart fees, Nassau bets and 19th hole tabs. You need time off to re-charge. You don't need 10 days at Disney World staying at the Grand Floridian, eating at Victoria and Albert's.

2. After completing a tough assessment of needs vs. wants vs. income, start off with as much as you can make room to contribute.

Remember that your contributions are in pre-tax dollars. IOW, Uncle Sam pays part of your contribution. Suppose you're in the 28% tax bracket, and you put in $200 a paycheck. Your take-home is only $144 less than if you had contributed nothing at all. Yet your 401(k) balance goes up $200, plus whatever match your employer makes.

Depending on your tax bracket and your employer's match, your first-year returns on each year's new money can easily reach well over 100%, maybe even 200%.

You can't get anywhere remotely approaching that return anywhere else, and are leaving tons of money on the table if you don't take advantage of this.

3. This is the hard part and it takes discipline. Every raise, whether through annual salary increases or promotions, goes into the 401(k). And you keep on doing that for as long as it takes you to reach the legal max.

I won't lie -- it's no fun. I didn't have a take-home raise for 8 solid years. But when I finally did, it was fantabulously glorious.

Plus, as BamaNation alludes, after 2-3 months, it kind of gets baked into your monthly cash flow and it's not as painful as you might imagine.

4. Keep on maxing out until the day you retire. The legal max increases every few years, so you'll have to increase accordingly. Believe me, your retired self will thank your young self every single day.

Pay Off Your Mortgage Early
Currently, 30 year mortgage rates are about 7%. So for a $250K mortgage, that works out to principal and interest of $1,663. Over 30 years, you pay 360 x $1,663 = $598,680.

Note: This is principal and interest only. It doesn't include taxes and insurance.

Suppose you want to be done in 20 years. A lot of people think you'd have to pay 1.5x your 30 year payment. You don't. First, the 20 year interest rate is a bit lower (6.5% or so today). Second, exponential arithmetic works in your favor.

Together, that means that a $250K mortgage at 6.5% for 20 years works out to a payment of $1,863. Over 20 years, you pay $447,120 -- a savings of over $150,000. And 10 fewer years of making payments.

One neat trick: You can pay more than the required payment on your mortgage. If you do that, the extra reduces the outstanding principal. On a 30 year mortgage at today's rates, that's a guaranteed return of 7%.

Where else are you going to find a mathematically guaranteed return of 7%?

Mrs. Basket Case and I did this:
1. We started with a goal of being finished with mortgage payments after 15 years.
2. We agreed that we might trade up houses over time, but 15 years from the original start date, we'd be done.

So suppose 3 years into the plan, we had our eye on a new house. We'd have to have that house paid off in 12 years -- 15 years from the original start date, less 3 years elapsed time. If we couldn't afford that, we couldn't afford the house.

3. We actually had mortgage notes on a 25 year amortization schedule. But we took advantage of the option to pay more. So we paid on a 15 year schedule -- or 12, or however many years we had left on the original plan when we bought the new house.

The cool thing about that was it gave us the flexibility to drop back to the lower contractually required payment in the event of a no-foolin' emergency. Sure, the interest rate was a tick higher, but not much. We just figured it was the price of having the flexibility if we needed it.

We were fortunate that we never had to use that option. But the fact that it was there was a source of peace of mind.

Both of these plans require discipline. You have to watch your friends have a big time spending, spending, spending, hear them brag about their stuff or where they just ate or went on vacation, and listen to them laugh and shake their heads at you.

Then one evening when you're a few months from retirement, you'll be at some cocktail party. You're talking about your plans, and they're moaning about having to work forever. They ask how you did it, and you tell them the two points above -- max out tax-advantaged retirement plans and pay off the house early. They'll look at you like you have three heads and say, "I remember you talking about that...but you really did it?!?"

It's sad to watch their faces as they realize that they're too far along in life to get their finances in order to retire in the way they want. I also have to confess to a bit of schadenfreude when I remember how much they mocked what the Basket Cases were doing.

Of all the assets you have as a young person, time is both the most valuable and the most perishible.

This is the best financial advice I have ever seen. I wish I had followed this beginning in my early 30's. We had each church put an amount equal to 10% of salary and housing into retirement -- should have been 20% and we should have had more guidance on how to invest that. The SBC gave little or nothing advice wise to its retirees.

Best help we currently have is that funds coming from a church related financial retirement institution can be designated as housing allowance -- within certain limits. This reduces or eliminates income tax for most ministerial retirees. I have several friends who opted out of SS and did not invest the money as they intended. They are my age, early to mid 70's, and still working.

 

[BamaNation]

I’ve seen HSA’s mentioned several times. We actually have one now (and try to kick in all we can) because we more or less got forced on to a HDHP insurance plan. Is there a way to have a HSA outside of a HDHP? We have the option of getting affordable “real” health insurance again and it seems we have to give up the HSA if we take it. The HSA is a useful thing except the HDHP pays for absolutely NOTHING till you hit deductible which means the insurance doesn’t kick in unless you’ve got something really bad or have surgery at which point you empty the HSA.

We use my wife’s insurance and have a HDHP so get to contribute to an HSA. We then roll over the amount contributed once a year into an HSA we opened at Fidelity. We use it as a “stealth Roth.” This means we invest the funds in a total market index and don’t touch it. Our plan is to let it ride until we retire and use as needed or later on use to pay our health insurance (at whatever age that’s allowed). We just cash flow any doctor visits. Fortunately we have all (me, Mrs BN, and 2 daughters) been pretty healthy so this has been a great decision. We can access it anytime needed for health costs. HSAs are triple tax advantaged- pre-tax if contributed out of your paycheck, can grow if invested without earnings being taxed, and can be withdrawn anytime without being taxed if used for healthcare expenses.

We used to run a sophisticated analysis each year to decide which plan to use but my wife’s company plan is now so good we dont even do that. We just max out the HSA and then add on their limited purpose fsa plan to pay for dental and vision needs (new lenses or contacts for multiple people, dentist visits, braces, etc) so thats tax advantaged too.

for those who have costly health issues or expensive pharmaceuticals then an HDHP + HSA may not be the right choice.

You can contribute to an HSA if you have a HDHP (high-deductible health plan). Otherwise, you cannot. When filing taxes each year you actually have to confirm your plan (and I think you get a tax form from your employer verifying what you have. You'll also get a form / info on how much you contributed to the HSA and its current value and you have to report that as well (from what I remember).

 

[B1GTide]

Thought I'd expand on two strategies that almost anybody can execute, but almost nobody does.

Either can have a huge impact on your financial position heading into retirement. Together, they can make your golden years truly golden.

Truly Maxing Out 401(k) or 403(b) Contributions
Above I mentioned maxing out your 401(k) / 403(b) contributions. Most of the people you heard at holiday parties holding forth on how they "maxed out" their 401(k) are talking about maxing out their employer's match.

That's a nice start. But for the vast majority of us, it's nowhere near enough for a comfortable retirement.

You need to max out the legal limit -- currently $23,500 up to age 50, $31,000 from age 50 to 60, and $34,750 from age 60 to 63 (thanks on that point, @BamaNation...I wasn't aware of that new provision).

If you're early in your investing life, I know $23,500 seems an impossibly high number. And for most 30-year-olds, it is. But it doesn't have to be in your mid-40s. Here's how Mrs. Basket Case and I did it.

1. Have an honest conversation about needs vs. wants. You have to eat. You don't have to take the family out to dinner 3-4 times a week. You need a reliable car. You don't need a tricked-out electric F-150 new off the lot. You need a social life. You don't need a $500 a month country club membership, with a $2,500 set of golf clubs, plus 10 rounds a month of golf cart fees, Nassau bets and 19th hole tabs. You need time off to re-charge. You don't need 10 days at Disney World staying at the Grand Floridian, eating at Victoria and Albert's.

2. After completing a tough assessment of needs vs. wants vs. income, start off with as much as you can make room to contribute.

Remember that your contributions are in pre-tax dollars. IOW, Uncle Sam pays part of your contribution. Suppose you're in the 28% tax bracket, and you put in $200 a paycheck. Your take-home is only $144 less than if you had contributed nothing at all. Yet your 401(k) balance goes up $200, plus whatever match your employer makes.

Depending on your tax bracket and your employer's match, your first-year returns on each year's new money can easily reach well over 100%, maybe even 200%.

You can't get anywhere remotely approaching that return anywhere else, and are leaving tons of money on the table if you don't take advantage of this.

3. This is the hard part and it takes discipline. Every raise, whether through annual salary increases or promotions, goes into the 401(k). And you keep on doing that for as long as it takes you to reach the legal max.

I won't lie -- it's no fun. I didn't have a take-home raise for 8 solid years. But when I finally did, it was fantabulously glorious.

Plus, as BamaNation alludes, after 2-3 months, it kind of gets baked into your monthly cash flow and it's not as painful as you might imagine.

4. Keep on maxing out until the day you retire. The legal max increases every few years, so you'll have to increase accordingly. Believe me, your retired self will thank your young self every single day.

Pay Off Your Mortgage Early
Currently, 30 year mortgage rates are about 7%. So for a $250K mortgage, that works out to principal and interest of $1,663. Over 30 years, you pay 360 x $1,663 = $598,680.

Note: This is principal and interest only. It doesn't include taxes and insurance.

Suppose you want to be done in 20 years. A lot of people think you'd have to pay 1.5x your 30 year payment. You don't. First, the 20 year interest rate is a bit lower (6.5% or so today). Second, exponential arithmetic works in your favor.

Together, that means that a $250K mortgage at 6.5% for 20 years works out to a payment of $1,863. Over 20 years, you pay $447,120 -- a savings of over $150,000. And 10 fewer years of making payments.

One neat trick: You can pay more than the required payment on your mortgage. If you do that, the extra reduces the outstanding principal. On a 30 year mortgage at today's rates, that's a guaranteed return of 7%.

Where else are you going to find a mathematically guaranteed return of 7%?

Mrs. Basket Case and I did this:
1. We started with a goal of being finished with mortgage payments after 15 years.
2. We agreed that we might trade up houses over time, but 15 years from the original start date, we'd be done.

So suppose 3 years into the plan, we had our eye on a new house. We'd have to have that house paid off in 12 years -- 15 years from the original start date, less 3 years elapsed time. If we couldn't afford that, we couldn't afford the house.

3. We actually had mortgage notes on a 25 year amortization schedule. But we took advantage of the option to pay more. So we paid on a 15 year schedule -- or 12, or however many years we had left on the original plan when we bought the new house.

The cool thing about that was it gave us the flexibility to drop back to the lower contractually required payment in the event of a no-foolin' emergency. Sure, the interest rate was a tick higher, but not much. We just figured it was the price of having the flexibility if we needed it.

We were fortunate that we never had to use that option. But the fact that it was there was a source of peace of mind.

Both of these plans require discipline. You have to watch your friends have a big time spending, spending, spending, hear them brag about their stuff or where they just ate or went on vacation, and listen to them laugh and shake their heads at you.

Then one evening when you're a few months from retirement, you'll be at some cocktail party. You're talking about your plans, and they're moaning about having to work forever. They ask how you did it, and you tell them the two points above -- max out tax-advantaged retirement plans and pay off the house early. They'll look at you like you have three heads and say, "I remember you talking about that...but you really did it?!?"

It's sad to watch their faces as they realize that they're too far along in life to get their finances in order to retire in the way they want. I also have to confess to a bit of schadenfreude when I remember how much they mocked what the Basket Cases were doing.

Of all the assets you have as a young person, time is both the most valuable and the most perishible.

I truly believe this to be good advice, but not for everyone. Your strategy for 80%+ of Americans is not possible. No amount of sacrifice would allow a family making $40k a year to save more than half of that.

But my biggest concern with this advice is that it leaves no room to enjoy life through those savings years unless you are in the top 10%. And life is meant to be lived, not survived.

 

[BamaNation]

I truly believe this to be good advice, but not for everyone. Your strategy for 80%+ of Americans is not possible. No amount of sacrifice would allow a family making $40k a year to save more than half of that.

But my biggest concern with this advice is that it leaves no room to enjoy life through those savings years unless you are in the top 10%. And life is meant to be lived, not survived.

Each individual has to examine what works for him/her/their family. I know multiple teachers who saved, lived fairly well on their teacher salary (traveled, were generous, etc) and left multiple millions to family and/or charities.

The key is to not spend more than you have. Save as much as you can and you then have options on how and when to spend it. It was something I knew but didn't execute as early as I should have. Having said that, not saving much early on allowed us to live in NYC and London fairly comfortably 25 years ago

Yet, when I do the calculations now for what I would have invested if I HAD saved $$ then, I realize I would be retired from a "normal job" yesterday.

There are ways to save even if you have little to start with. Choices have to be made. That also includes choice of career and/or specific job. Once you make the choice to save over, say buying bling bling tires or a new car every year or traveling to Cabo every 6 months or drinking/drugging yourself silly, then you have options in later years.

This thread is mostly about how to maximize your options through investing for retirement in programs offered by your employer. It doesn't mean everybody can take advantage of every option 4Q & I have mentioned when you're 25 or 35 or 45, but as 4Q constantly points out, starting early is a step-function game changer.

Some of these options are things I've only learned about and/or implemented in the last 15 years (i.e. Backdoor Roth, Mega Backdoor Roth, HSA as stealth Roth, etc.). There is also wisdom in realizing that there are certainly things we talk about that are really more aligned with mid-late career folks who are making more money than they ever have and, instead of blowing it on a $1 or $2MM house and a $100K truck might be better off putting that moolah toward maximizing the options we've mentioned.

I share with my college classes/students all of what I have talked about on here. Many of them are getting 1st jobs at $60K+ in IT fields (or accounting/finance, etc). A lot of them are at six figures after 3 years. Most are probably making double to triple what they have ever made or anyone in their family ever made. So, they need guidance on how to not waste an opportunity... and giving them a gold nugget thought or two might be something that changes their life forever. Not everything can be implemented by everyone but doing what you (they) can creates options. Options are valuable the longer you hold them.

In short and to be sure, I am 100% against being miserly or for that matter, even being over--aggressively frugal. I'm certainly neither. One "modern" way to do what we've mentioned - especially for younger folks - is to get a side gig. This can also work for retired folks who want to have a few things to do each week. (consulting, uber driving, etc.). There are ways to make it happen.

 

[B1GTide]

Each individual has to examine what works for him/her/their family. I know multiple teachers who saved, lived fairly well on their teacher salary (traveled, were generous, etc) and left multiple millions to family and/or charities.

The key is to not spend more than you have. Save as much as you can and you then have options on how and when to spend it. It was something I knew but didn't execute as early as I should have. Having said that, not saving much early on allowed us to live in NYC and London fairly comfortably 25 years ago

Yet, when I do the calculations now for what I would have invested if I HAD saved $$ then, I realize I would be retired from a "normal job" yesterday.

There are ways to save even if you have little to start with. Choices have to be made. Once you make the choice to save over, say buying bling bling tires or a new car every year or traveling to Cabo every 6 months or drinking/drugging yourself silly, then you have options in later years.

This thread is mostly about how to maximize your options through investing for retirement in programs offered by your employer. It doesn't mean everybody can take advantage of every option 4Q & I have mentioned when you're 25 or 35 or 45, but as 4Q constantly points out, starting early is a step-function game changer.

I agree, starting early is the key. My oldest son is 27, owns a farm and has a substantial 401k, but he also makes a very good salary for his age. My younger son chose a different path, has no savings, but is far happier. Who is better off?

 

[BamaNation]

I agree, starting early is the key. My oldest son is 27, owns a farm and has a substantial 401k, but he also makes a very good salary for his age. My younger son chose a different path, has no savings, but is far happier. Who is better off?

Obviously, those are their personal choices so we would have to ask them

My own view would be having no savings and having debt early in my career made me stressed all the time. Working hard, getting better jobs, doing some side gig stuff, and eventually making a higher salary allowed me to save more in all these various ways and I'm much happier knowing I did so and have lots of options available now.

If I could go back and talk to my 22-yr old self, I would say eat ramen noodles (or spaghetti noodles) every day (not really every day, but don't go out as much) , don't buy a new(er) car , save (invest) every penny you can, max out IRA & 401k etc. and do that until you're 35. At that point, re-evaluate and adjust as needed.

 

[4Q Basket Case]

I truly believe this to be good advice, but not for everyone. Your strategy for 80%+ of Americans is not possible. No amount of sacrifice would allow a family making $40k a year to save more than half of that.

But my biggest concern with this advice is that it leaves no room to enjoy life through those savings years unless you are in the top 10%. And life is meant to be lived, not survived.

The median household income in the US is a tick over $80K. The median 401(k) balance across all age groups is about $30K (less for younger investors, more for older ones). It's not exactly apples to apples because one is denominated in households and the other is 401(k) account balances.

It's likely that a lot of households have two or more 401(k)s, either because multiple members of the household work, or because they have multiple 401(k)s from multiple previous employers. Or both. Regardless, it's pretty clear that Americans as a whole aren't saving anywhere near enough for retirement.

The fix won't happen overnight, nor should it. It should take place over time. But you have to get started somewhere and have some concrete goals.

The fact that not every household can do what I've described doesn't mean that many can't. And it doesn't mean that most people can't do a lot better than they are doing.

Finally, it definitely doesn't mean that, because they might not be able to do the full thing, they should give up and do nothing -- which the numbers on savings vs. income would strongly indicate that many have done.

Though it necessarily does involve a bit of pain / deferred gratification, I've suggested a way for many people to do better while minimizing the discomfort.

In my experience, it's less about financial pain and more about financial discipline. Many people just don't grasp that relatively small choices today, repeated every stinkin' paycheck for 30 or so years, have a major impact on their ability to enjoy the latter stages of life.

To paraphrase The Unsinkable Molly Brown, "I've been broke. I've been financially comfortable. Financially comfortable is better."

For me personally, I was much more stressed when I was broke. Constantly worrying about unexpected expenses, next month's rent, etc. As I gradually got more financially comfortable over the years, my stress level greatly reduced. When I was going through the most stressful time of my work career, I didn't have GTH money. I did, however, have a GTH debt position, and that was far more comforting than any drug could possibly be.

But I learn all the time, and maybe you have a better idea. For people who can't do the full measure of what I described, how would you advise them to provide for their old age?

 

[B1GTide]

For people who are less fortunate, enjoy the life that you have. I have lived a fortunate life, but know many who have been far less fortunate. Those who stress over their finances are miserable. Those who just live their lives without worrying about things like this are much happier.

Just my experience, but that would be my advice.

 

[4Q Basket Case]

Understood.

Your approach is more, “Don’t worry….be happy.”

Mine is more, “Failure to plan is planning to fail.”

Different strokes.

 

[B1GTide]

Understood.

Your approach is more, “Don’t worry….be happy.”

Mine is more, “Failure to plan is planning to fail.”

Different strokes.

Not even close, but you don't want to understand.

 

[Bamaro]

I’ve skimmed through and don’t see any info on 403b’s. My wife’s business just got bought out and the new employer is a non-profit and offers a 403b instead of the 401k the previous ownership offered. Is there any need-to-knows? She has options on what to do with the money in her existing 401k.

Roll over the existing 401k into an IRA with an S&P 500 indexed fund with a company such as T Rowe Price, Fidility, Vanguard etc. They have very low fee structures. That will give you many more options in the future should you decide to make any changes in investment strategy.
Beyond that you may see little difference between your old 401K and your new 403B except with your investment options. I assume 403Bs contain a company match like 401Ks do. Maximize your companies contribution to the max if you can afford to (you probably can 'afford' it). That's like 'free' money.

 

[4Q Basket Case]

It’s clear that B1GTide and I see personal financial management through different lenses. That’s fine. Like I said, different strokes. Here’s some background in why I believe so strongly in what I’ve put forward.

I didn’t start with a silver spoon in my mouth. I was blessed to have a family that valued education even though they couldn’t pay for it. I was also blessed to have an old-school battle-ax of a math teacher at Tuscaloosa High School. She demanded every student’s best – often more than I thought I had to give. Because of Martha B. Howell, applying the mathematical principles to investing topics was perfectly understandable and just made easy sense.

Still, my family knew next to nothing about real investing. They knew they shouldn’t spend more than they made, though they weren’t always as diligent as they could have been on that point. They were especially deficient in distinguishing needs from wants.

They viewed investing in stocks as picking – IOW, they picked out and bought individual stocks with money they had left over after living daily life and having their fun. The concepts of (1) fun money being what you have left over after paying for prudently-defined necessities and investing, and (2) building a portfolio (as distinct from picking a stock), were as foreign to them as reading Egyptian hieroglyphs.

So when I finished the MBA program at Alabama, I had a pretty significantly negative net worth. I had a good job and good prospects, but nothing else except a fair amount of debt.

I’m not telling you all this to dislocate my shoulder patting myself on the back. I’m telling you because what I'm saying isn't coming from an ivory tower perspective of "let them eat cake."

I know what it is to be broke. I know what it is to have less than nothing when your car engine blows up and needs a total rebuild -- I can still remember the bill -- $1,281 in 1985 dollars. Took six months of no social life, including opting out of Christmas and bringing a sandwich to work every day, to dig out of that one.

So I know what it is to be unable to ask out a crush (who had indicated at least a little bit of reciprocal interest) because I didn’t have the money. I know what it is to make a financial plan and start executing it, and have a recession put a big dent in a small nascent nest egg. And no family to tell me that that's just part of it....that you're not truly an investor until you've seen the sun shine again on the other end of a recession.

I also know what it is to gradually, over time, see the plan start to work. At first slowly, then gaining momentum, persevering through three recessions, and finally ending with me and Mrs. Basket Case retired and able (within reasonable limits) to do what we want, when we want, in the style that we want. All that even though there was no family money or financial management skills to backstop us.

Most of us don’t have family money or an inheritance to make our financial lives easy. The best way – the only way – I know to go from nothing to something is to make a plan and execute it for 25 – 30 years.

I’m telling you more about my background than you probably want to know because I’m trying to convey one idea: Even if some of the specifics are beyond their realistic reach, the vast majority of the population can follow this over-arching concept and end their working careers in financial comfort.

It’s not easy. The hardest part is the discipline it requires. But if I can do it, you can too.

I’m also trying to suggest (1) practical ways to get there that don’t require a PhD in financial engineering to execute, and (2) how to handle the scoffs from people who aren't planning. Because they will come.

As a great coach once said, “The price of victory is high. But so are the rewards.”

 

[B1GTide]

It’s clear that B1GTide and I see personal financial management through different lenses. That’s fine. Like I said, different strokes. Here’s some background in why I believe so strongly in what I’ve put forward.

I didn’t start with a silver spoon in my mouth. I was blessed to have a family that valued education even though they couldn’t pay for it. I was also blessed to have an old-school battle-ax of a math teacher at Tuscaloosa High School. She demanded every student’s best – often more than I thought I had to give. Because of Martha B. Howell, applying the mathematical principles to investing topics was perfectly understandable and just made easy sense.

Still, my family knew next to nothing about real investing. They knew they shouldn’t spend more than they made, though they weren’t always as diligent as they could have been on that point. They were especially deficient in distinguishing needs from wants.

They viewed investing in stocks as picking – IOW, they picked out and bought individual stocks with money they had left over after living daily life and having their fun. The concepts of (1) fun money being what you have left over after paying for prudently-defined necessities and investing, and (2) building a portfolio, were as foreign to them as reading Egyptian hieroglyphs.

So when I finished the MBA program at Alabama, I had a pretty significantly negative net worth. I had a good job and good prospects, but nothing else except a fair amount of debt.

I’m not telling you all this to dislocate my shoulder patting myself on the back. I’m telling you because I know what it is to be broke. I know what it is to have less than nothing when your car engine blows up and needs a total rebuild -- I can still remember the bill -- $1,281 in 1985 dollars. Took six months of no social life, including opting out of Christmas and bringing a sandwich to work every day, to dig out of that one.

So I know what it is to be unable to ask out a crush (who had indicated at least a little bit of reciprocal interest) because I didn’t have the money. I know what it is to make a financial plan and start executing it, and have a recession put a big dent in a small nascent nest egg. And no family to tell me that that's just part of it....that you're not truly an investor until you've seen the sun shine again on the other end of a recession.

I also know what it is to gradually, over time, see the plan start to work. At first slowly, then gaining momentum, persevering through three recessions, and finally ending with me and Mrs. Basket Case retired and able (within reasonable limits) to do what we want, when we want, in the style that we want. All that even though there was no family money or financial management skills to backstop us.

Most of us don’t have family money or an inheritance to make our financial lives easy. The best way – the only way – I know to go from nothing to something is to make a plan and execute it for 25 – 30 years.

I’m telling you more about my background than you probably want to know because I’m trying to convey one concept: Even if some of the specifics are beyond their realistic reach, the vast majority of the population can follow this over-arching concept and end their working careers in financial comfort.

It’s not easy. The hardest part is the discipline it requires. But if I can do it, you can too.

I’m also trying to suggest (1) practical ways to get there that don’t require a PhD in financial engineering to execute, and (2) how to handle the scoffs from people who aren't planning. Because they will come.

As a great coach once said, “The price of victory is high. But so are the rewards.”

I actually did not criticize your post. I agreed with it. I simply believe that it is impossible for the vast majority.

Some believe that they achieved because they worked harder, planned better, etc. Those things are necessary, but to accumulate any wealth at all one must also be lucky.

Some examples - Lucky to be born at the right time, and place. Lucky to be born into a loving family. Lucky to have their health (mental and physical). Lucky to avoid so many life altering circumstances.

For those less lucky, there has to be a different message. That is all that I am saying. How can people with nothing help themselves to a better life?

Peace

 

[4Q Basket Case]

A list of seven books on retirement planning from Morningstar:

The 7 Best Retirement Books | Morningstar

Full disclosure: I have not read any of these, so I can't recommend or criticize any of them. I do, however, highly admire Christine Benz who is the author of one of the books.