What good is having a 401k....if?

Question

If a person dies before having the chance to enjoy using all that money they have built up over the past decade or more? For some, retirement age is so so far away they can't even see it.  People want to enjoy their money today while they are young and living without having to worry about penalty fees. Is having a 401k a good option for those who want to put their money to use today while they are still here? Just saying. Tomorrow is not promised to anyone. It would be a pretty bad feeling to think about all the things that could have done with the money when that person was still around.

Martin L. · Answer

For me, a 401k is only as good as it's company match. Any more than that is wasted opportunity to put into better investments, but any less is a huge loss of what is basically free money. For every $100 you put in, you immediately have $200, then any interest growth is compounding on that full $200 amount, not just your initial $100. However, it's also diversification from my real estate assets, and diversification really is important. It's foolish to lose out any employer match, but for anyone on this board, it's probably similarly foolish to put in any more than that match.

If my employer gave a 50% match (impossible for a number of reasons, but theoretically), I would put in 50%. If they gave 100% match, I'd put in 100% and get a second job to scrape by. As mentioned earlier, you always have the option of pulling out early and taking the 10% penalty if you really need to, which means you still got a base return of 80% plus any growth.

Steve Vaughan · Answer

My parents, in-laws and my neighbor did your YOLO plan.  They are now all 75+ with only social insecurity and small pensions as income.

An extravagance for them is a weekend drive a few hours away and they are very limited.  They had nice cars and car payments, did vacations, had nice clothes and ate out all the time when they were younger.  Their house is their only asset, and one couple is 75 and almost has their house paid off.  Just a few. More. Years. Your choice. YOLO it up if you want...

Jim Goebel · Answer

@Tony Marcelle

Tony not sure what you're after here.  Yes, people can get hit by a bus or a falling piano.  For me, I personally wouldn't advocate that fear driving decision making.  Delayed gratification is one of the most important things that people can learn and actively do.

The US Government putting together a program/incentives encouraging people to practice delayed gratification is a good thing.

People (including you) can decide to use it, or not.  There are of course other alternatives.

The tax advantages along with compounding interest are huge.

Brian K. · Answer

Food for thought. If one doesn't plan for tomorrow the gov will be happy to help you and your heirs when the time is near. They might not provide a lot of choices, create lower limits, it more than likely will be below the minimum care, probably taking any remaining assets and comforts.

If someones is in good health and sound mind when they are a senior, freedom and comfort are a important part of life.

Peter M. · Answer

Well you can't save and spend the same money at the same time...so if you want to save for retirement and let your money grow tax free, use a 401k. If you want to spend it, spend it. If you want to invest with the option to pull it out at any time (ie. more liquid than real estate) look into mutual funds or ETFs. Or use your money to buy a vacation house and rent it out while you aren't using it. 401ks have their place but as with everything you should be diversified.

Derek Tellier · Answer

@Tony Marcelle I just recently brought up the 401k topic in a thread myself and it ended up generating a ton of great information.

I don’t know your situation, how old you are what kind of money you make, how well you can control your spending, etc. but the best advice I can give is contribute to it as much as you can up to maxing out your employer contribution especially if it’s immediately vested. That’s free money! You mentioned you can only afford to put in 2% but your employer will match up to 6%. I don’t see you having enough capital from that 2% to be able to use it to generate cash flow enough to offset the 6% match you could be getting from your employer. You would essentially be getting a 100% return on 6% of your pay, no RE investment is going to give you that.

Save outside what you put into it and get into REI with that $. Once you’ve gotten yourself financially free and quit that job you can roll it into a solo 401k and one of 2 things will likely happen, there are many more than 2 but..., you’ll now have access to use that money to continue to grow your portfolio OR you’ll not need it for that purpose and invest it elsewhere. Either way you’ll be glad you got that free money when you could.

Chris Szepessy · Answer

I have people tell me all the time that I need to spend more money/enjoy life more because I could die tomm. While they may be right because tomm isn't guaranteed to anybody, I plan to "retire" in the next 10 years when I'm just over 40. I have a great life with my wife and kids and I don't need to spend a ton of money to have fun with them.

If you're talking about investing the money you would normally put into your 401k into real estate and then earning cash flow now, that's different than just spending the money foolishly on new cars, expensive dinners, etc. Your statement was kind of hard to decipher how you meant it. There's a lot of people who do think like you because "what's the point in having a ton of money when you're 75 and have health problems and can't do anything with the money?" That makes sense to a point, but I feel most of us on this site are here to retire early enough with enough money to enjoy the next 30-50 years of life.

A kid I went to school with owns what appears to be a successful business, based off what he has. A $70k truck pulling an equally expensive boat, multiple snowmobiles, side by sides, etc. You name it, he probably has it. I talk to him occasionally and I always joke around with him and say "must be nice." His response is, "just more payments, and yeah, right now it is nice, but not sure what I'm gonna do in the future." He saves none of his income, has no pension (self employed), and has no real assets. I guess in the end it comes down to personal preference.

George Blower · Answer

@Tony Marcelle

Upon the 401k participant's death, the funds will flow to the named beneficiary. To learn about the beneficiary distribution rules, see the following.

https://www.irs.gov/retirement-plans/plan-particip...

What good is having a 401k....if?

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