When I die put my money in the grave
Can we discuss 401ks? I would contend that 401ks are the single biggest contributor of people never doing something on their own because a ton of their savings are tied up in something that they won’t touch until they are 60.
My thoughts on why you should contribute $0 to 401ks if you are pursuing a career in finance:
1. The Amplifier Effect: 20k per year accumulated likely won’t be much to a finance professional in their 60s but could meaningfully impact quality of life in your 20s/30s
2. Who cares: who cares about some savings on cap gains taxes. Would way rather have the money at my disposal today. What if my potential ROIC on that 20k is higher than what I save from cap gains? Which leads me to…
3. It limits your financial freedom when you are younger
What does everyone think? Maybe I’m not seeing things clearly
I would suggest only contributing up to the point where you get the match, because otherwise I somewhat agree
Depends, generally agree with the fact that it limits financial flexibility while young. But would argue that this is mostly an issue for finance savy, high income earning (or potential to earn) individuals.
For the vast majority of people (ie those with a corporate job, not planning on making risky personal investments, funding their own startup, acquiring real assets, etc.), it is a sure fire way to financial independence at retirement ie you can actually retire
As a financial professional the 23k of savings per year into 401k is not really a meaningful amount relative to your income outside of maybe first year/two as an analyst. I look at it as forced savings I don't even see and a way to avoid lifestyle creep a bit by reducing the net paycheck that hits the bank.
Contributing up to the match is a no brainer- you immediately double your money. I once had a coworker who thought he could do better investing on his own- I had to walk him through the math of how insanely better he would have to do to beat an automatic double.
Anyway- If you work in a high paying job, $23k is not a significant portion of your savings/earnings. Might as well lock it up to tax shelter it.
Early in my career I contributed to my 401k only to get the match, and saved outside for optionality. Ended up using my outside savings on an MBA and a house. But now, a few promos later and no significant expenses on the horizon, maxxing all tax sheltered accounts is a fraction of my savings.. might as well.
Lastly- I've been so bearish on the markets over the last few years, and have mostly been accumulating cash. I would have totally missed the recent run except for the fact that my 401k is getting money plopped into a broad market fund every other week. It'll be interesting to see which performs better in the long run- me trying to time the market, or my 401k just adding every other week. I'm glad I have both.
What?
1. $23k invested annually (w/o taxes interruption) for 45 years (ages ~25-70) growing at ~6% rate on avg is ~$6M at age 70 - after tax - ~$4M
2. If you stay in finance - $23k of pre-tax income is literally ~1-2 weeks (?) of compensation (excluding any carried interest)
So not sure what we are all saying here. It is literally one of the only legal ways to shield taxes. Contribute to your 401-k kids...
The first calc you’re showing isn’t the right one. You should just be calculating the marginal benefit of the 401k (which is bigger dollars at work for compounding purposes vs showing this random $4mm, which btw and unrelatedly isn’t that much money for a 70 year old who had a career on Wall Street)
You’re also missing the point - as an analyst or associate, $25k ($15k post tax) is actually a big difference for quality of living. Difference between a 3K apartment and a 4K, difference between eating out for a year and staying in more often, or more importantly it accumulates as a nice cushion were you to want to start something on your own. Whereas the $4mm (which again is not the right number to look at) when your 70 after a long career in finance where you presumably made millions of dollars is not helpful. Time value of money with a twist.
lol okay you do you.
A $1 when you’re an analyst has FV of $50-100 by the time you’re retired. If the question is putting $1 into a tax shielding investment account vs spending it on rent.. I hope it’s a nice apartment
This
that's the npv of this with a discount rate of 5%?
Genius, no one forces you to contribute to your 401k. You’re acting like is mandatory.
And second, if you actually work in finance and are not a LARPing corp dev or consulting bro, 20k a year is an amount you won’t even feel.
A first year analyst at a crappy bank makes at least 150k, how would 20k pretax into a 401k affect your life in any meaningful way.
And the fact you don’t understand the power of compounding interest, time and deferred taxes makes me think you’re def not in finance.
God people are low iq around here.
couple things
first, you're wrongly assuming people would be better off "doing something on their own" when in reality, most people ought to just do 401k and fuggeddaboudit
second, if you can save more, absolutely save money outside of 401ks for liquidity pre-60
third, don't confuse the utility of accounts with different time horizons - if you're saving & investing for spending that won't occur until you're 60, then 401k is the best vehicle for it because of tax deferral/tax free growth. if you're saving for more short/medium term needs, you'd be retarded to put it all in 401k
personally, I'm 100% roth (401k, backdoor, megabackdoor) for long term and have a healthy brokerage balance for short/medium term + optionality
If the $20k a year you put into your 401(k) is the difference between you "doing something on your own" or not, you're probably better off not doing whatever that thing is and just saving the money.
For most people here, there shouldn't be anything stopping you from maxing out your retirement AND doing other things with your money.
Is the RBC Veritas kid posting again?
Not sure why you imply I work at Veritas. I mentioned other funds as well when i said where I might work
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