4 ms·

Another misconception is the 'live pay check to paycheck' statistics that are floating around, which isn't really well defined. I know many people who live 'pa

Another misconception is the 'live pay check to paycheck' statistics that are floating around, which isn't really well defined. I know many people who live 'paycheck to paycheck' simply because well, after maxing their 401k, they spend all their money every month. Doesn't mean they couldn't cut back if they needed to, or tap into a large 401k (and pay a penalty) but it's not like they're destitute.

samsolomon 3y ago
I get what you're saying, but I don't really think this counts as living paycheck to paycheck. This is just reverse budgeting. Heck, I do the same thing. I have a predefined amount that goes into my various accounts each paycheck. The rest is used for the mortgage, bills, other monthly expenses, etc... It is much easier to adjust your 401k, Roth, HSA and Brokerage account transfers than to get a raise.
- ryandrake 3y ago
  It's the Warren Buffet quote: “Do not save what is left after spending, but spend what is left after saving.” I don't even see the money that goes into my savings--it happens automatically before I even get paid. What's left over is a small, small percentage of my actual after-tax pay, and that has to somehow stretch to the next paycheck, which is not always easy.
bluGill 3y ago
If your 401k is maxed out it is probably wrong to save anything more in general. Maybe you are planning an expensive vacation so you save for a few months, and everyone should save a small emergency fund. However there is no reason to think you will live to see tomorrow and if you are one of the unlucky who don't wake up again any savings will be lost. A 401k is for most the right level of compromise unless you start late in life a maxed 401k is probably slightly too much savings. If you have the 401k maxed it is time to start living on whatever money is left - buy toys you will enjoy, donate to a good cause, I don't care, but if there is money left over after paying for normal life enjoy it as you can't take it with you (see religion for possible exceptions - you get to figure that out on your own)
- pb7 3y ago
  This is bad financial advice. I recommend to anyone reading to not do this lest you become the subject of another crappy CNBC headline. Relying on a 401k alone means that in the best case scenario means you're all but guaranteed to work until 60. Being on this site, you're statistically likely to be a person that can retire on great sums long before 60 and be both financially secure and have many healthy years to enjoy your life.
  - nwiswell 3y ago
    > Relying on a 401k alone means that in the best case scenario means you're all but guaranteed to work until 60. This isn't actually true. I don't mean to suggest that the GP is good advice, but: 1) Many companies offer "mega-backdoor Roth" 401k, with in-service conversion from regular after-tax dollars to Roth after-tax, meaning you can contribute a total of ~$53k annually or whatever the number is now. 2) When you separate from your employer, you can roll over your Trad and Roth 401k into Trad and Roth IRAs. 3) After 5 years (which clearly won't be an issue), the principal contributed to a Roth can be withdrawn tax and penalty free even before retirement age. 4) You can always convert Trad IRA dollars to Roth IRA dollars by paying tax. These dollars become principal in the Roth and therefore eligible for early distribution. Assuming you haven't retired incredibly early or made highly unusual gains, a combination of continued Trad->Roth conversion and Roth principal distribution can get you to retirement age even without any additional savings.
  - ghaff 3y ago
    Retiring at the youngest age possible isn't the be-all-to-end-all and I will continue professional activities for at least a time at some level after "retirement." But, yes, giving yourself options is good advice generally.
- xyzelement 3y ago
  // If your 401k is maxed out it is probably wrong to save anything more in general. This sounds like really bad advice. 401K limits are 22.5K this year. If you are making 100K and you are able to put away over 20% of it, maybe that gives you a reasonable probability of maintaining your lifestyle in retirement. If you're making good money and you're only saving 22.5K, you are probably going to take a serious hit whenever your income stops. You are also completely undervaluing having "dry powder." Let's say interest rates go through the roof and "nobody" can afford to take out a mortgage, being the one guy with cash-on-hand will let you capture some once-in-a-lifetime real estate deals. Also, freedom. Under your scenario, someone working a decade will have saved 220K in their 401k and that's it. Now they want to quit their job and start a business. They have to cash out their 401k just to sustain ~1 year of them not drawing a salary. Who's gonna do that? Versus, imagine the same person has a ton of additional savings - they can take the risk because it's a much smaller risk to them (longer runway) // if there is money left over after paying for normal life enjoy it as you can't take it with you You are probably undervaluing the "enjoyment" people get out of deep financial safety.
jancsika 3y ago
Your comment is also not well-defined. Are you claiming that many people you know who are maxing out their 401k, HSA, and Roth IRA literally speak the words "paycheck to paycheck" to describe their financial situation?

samsolomon 3y ago

I get what you're saying, but I don't really think this counts as living paycheck to paycheck. This is just reverse budgeting. Heck, I do the same thing. I have a predefined amount that goes into my various accounts each paycheck. The rest is used for the mortgage, bills, other monthly expenses, etc... It is much easier to adjust your 401k, Roth, HSA and Brokerage account transfers than to get a raise.

ryandrake 3y ago
It's the Warren Buffet quote: “Do not save what is left after spending, but spend what is left after saving.” I don't even see the money that goes into my savings--it happens automatically before I even get paid. What's left over is a small, small percentage of my actual after-tax pay, and that has to somehow stretch to the next paycheck, which is not always easy.

bluGill 3y ago

If your 401k is maxed out it is probably wrong to save anything more in general. Maybe you are planning an expensive vacation so you save for a few months, and everyone should save a small emergency fund. However there is no reason to think you will live to see tomorrow and if you are one of the unlucky who don't wake up again any savings will be lost. A 401k is for most the right level of compromise unless you start late in life a maxed 401k is probably slightly too much savings. If you have the 401k maxed it is time to start living on whatever money is left - buy toys you will enjoy, donate to a good cause, I don't care, but if there is money left over after paying for normal life enjoy it as you can't take it with you (see religion for possible exceptions - you get to figure that out on your own)

pb7 3y ago
This is bad financial advice. I recommend to anyone reading to not do this lest you become the subject of another crappy CNBC headline. Relying on a 401k alone means that in the best case scenario means you're all but guaranteed to work until 60. Being on this site, you're statistically likely to be a person that can retire on great sums long before 60 and be both financially secure and have many healthy years to enjoy your life.
- nwiswell 3y ago
  > Relying on a 401k alone means that in the best case scenario means you're all but guaranteed to work until 60. This isn't actually true. I don't mean to suggest that the GP is good advice, but: 1) Many companies offer "mega-backdoor Roth" 401k, with in-service conversion from regular after-tax dollars to Roth after-tax, meaning you can contribute a total of ~$53k annually or whatever the number is now. 2) When you separate from your employer, you can roll over your Trad and Roth 401k into Trad and Roth IRAs. 3) After 5 years (which clearly won't be an issue), the principal contributed to a Roth can be withdrawn tax and penalty free even before retirement age. 4) You can always convert Trad IRA dollars to Roth IRA dollars by paying tax. These dollars become principal in the Roth and therefore eligible for early distribution. Assuming you haven't retired incredibly early or made highly unusual gains, a combination of continued Trad->Roth conversion and Roth principal distribution can get you to retirement age even without any additional savings.
- ghaff 3y ago
  Retiring at the youngest age possible isn't the be-all-to-end-all and I will continue professional activities for at least a time at some level after "retirement." But, yes, giving yourself options is good advice generally.
xyzelement 3y ago
// If your 401k is maxed out it is probably wrong to save anything more in general. This sounds like really bad advice. 401K limits are 22.5K this year. If you are making 100K and you are able to put away over 20% of it, maybe that gives you a reasonable probability of maintaining your lifestyle in retirement. If you're making good money and you're only saving 22.5K, you are probably going to take a serious hit whenever your income stops. You are also completely undervaluing having "dry powder." Let's say interest rates go through the roof and "nobody" can afford to take out a mortgage, being the one guy with cash-on-hand will let you capture some once-in-a-lifetime real estate deals. Also, freedom. Under your scenario, someone working a decade will have saved 220K in their 401k and that's it. Now they want to quit their job and start a business. They have to cash out their 401k just to sustain ~1 year of them not drawing a salary. Who's gonna do that? Versus, imagine the same person has a ton of additional savings - they can take the risk because it's a much smaller risk to them (longer runway) // if there is money left over after paying for normal life enjoy it as you can't take it with you You are probably undervaluing the "enjoyment" people get out of deep financial safety.

jancsika 3y ago

Your comment is also not well-defined. Are you claiming that many people you know who are maxing out their 401k, HSA, and Roth IRA literally speak the words "paycheck to paycheck" to describe their financial situation?