4 ms·

Depends on your definition of high earners, but most everyone that earns a living from W-2 income and is in the technology industry will be able to retire very

by tcoppi 10y ago

Depends on your definition of high earners, but most everyone that earns a living from W-2 income and is in the technology industry will be able to retire very easily by contributing as much as they can, preferably the max(currently $18,500) to their 401k and thereafter maximizing other tax-advantaged spaces such as Roth 401ks and IRAs over their working career. You would need to either be retiring exceptionally early, with less than 20 years of working life, or retire expecting to draw more than you earned in salary, to require after-tax investments to retire. Even if you do require after-tax investments, the preponderance of your income in retirement will most likely still come from those tax advantaged spaces, assuming you are a rational actor and wish to pay as little tax as possible. The only situation I can see where this doesn't apply is when you don't earn the majority of your income from W-2 wages and instead see it as long-term capital gains, in which case almost none of the advice in this entire comment thread is applicable and you should seek a fiduciary advisor.

thedufer 10y ago
> retiring exceptionally early, with less than 20 years of working life This is an assumption I'm working under, but I've thought about it for a more normal case as well. Still, the usual advice for saving for a normal retirement is 10%-15%, and you only have to break $185k before a 401(k) doesn't cover even the low end of that.
- tcoppi 10y ago
  Well you have to consider matching numbers in that as well. My employer contributes 10%, which is on the high end of normal, but not that abnormal for most highly paid positions. It is easy to contribute 20%+ making over the 33% bracket and not even touch 401k total contribution limits that way(total limit is currently $53k). If you are making that much and your employer is not contributing a lot to your 401k it is definitely worth your while economically to convince them to do so(and when you are making that much you will have the clout to make them do so). Remember, the whole point of 401(k) plans initially was as a backdoor way to compensate high earners. Also, if you're making that much, even if you want to retire early, the normal % rules of thumb don't necessarily apply, assuming you want to live a normal middle-class life in retirement. You should run the numbers on http://firecalc.com http://firecalc.com, you will find if you live frugally making that much and contribute the max you can easily retire in under 20 years with a >90% chance of success. If you want to retire to the high life you will either have to contribute more than normal(and invest well/be lucky) or work longer, no matter your income. Edit: I will say that there is a potentially significant disadvantage, especially for high earners, in having a lot of your net worth tied up in a 401k. That is required minimum distributions, essentially forcing you to take out a certain percentage of your account balance when you reach certain age thresholds. You can somewhat easily get around this by rolling over into a Roth IRA(backdoor Roth), but that could offset many of the tax advantages of the 401k in the first place if you have significant traditional IRA holdings[1]. This is mostly deleterious if you are planning on bequeathing an estate in a tax-advantaged way, but you may be able to get around it with a irrevocable trust. Consult a fiduciary, this is not financial advice. 1. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA#Caution https://www.bogleheads.org/wiki/Backdoor_Roth_IRA#Caution

by tcoppi 10y ago

thedufer 10y ago

> retiring exceptionally early, with less than 20 years of working life This is an assumption I'm working under, but I've thought about it for a more normal case as well. Still, the usual advice for saving for a normal retirement is 10%-15%, and you only have to break $185k before a 401(k) doesn't cover even the low end of that.

tcoppi 10y ago
Well you have to consider matching numbers in that as well. My employer contributes 10%, which is on the high end of normal, but not that abnormal for most highly paid positions. It is easy to contribute 20%+ making over the 33% bracket and not even touch 401k total contribution limits that way(total limit is currently $53k). If you are making that much and your employer is not contributing a lot to your 401k it is definitely worth your while economically to convince them to do so(and when you are making that much you will have the clout to make them do so). Remember, the whole point of 401(k) plans initially was as a backdoor way to compensate high earners. Also, if you're making that much, even if you want to retire early, the normal % rules of thumb don't necessarily apply, assuming you want to live a normal middle-class life in retirement. You should run the numbers on http://firecalc.com http://firecalc.com, you will find if you live frugally making that much and contribute the max you can easily retire in under 20 years with a >90% chance of success. If you want to retire to the high life you will either have to contribute more than normal(and invest well/be lucky) or work longer, no matter your income. Edit: I will say that there is a potentially significant disadvantage, especially for high earners, in having a lot of your net worth tied up in a 401k. That is required minimum distributions, essentially forcing you to take out a certain percentage of your account balance when you reach certain age thresholds. You can somewhat easily get around this by rolling over into a Roth IRA(backdoor Roth), but that could offset many of the tax advantages of the 401k in the first place if you have significant traditional IRA holdings[1]. This is mostly deleterious if you are planning on bequeathing an estate in a tax-advantaged way, but you may be able to get around it with a irrevocable trust. Consult a fiduciary, this is not financial advice. 1. https://www.bogleheads.org/wiki/Backdoor_Roth_IRA#Caution https://www.bogleheads.org/wiki/Backdoor_Roth_IRA#Caution