Aug 1, 2022·edited Aug 1, 2022Liked by BowTiedF'er
Thank you for setting this up, ser. Deeply appreciate it and I hope to see this be a monthly occurrence if it makes sense for you.
Question: Do 401Ks make sense if you're a smart young person and high income? Details below:
I was hoping to have a sanity check by you on this. I estimate that if I maxed out my Employer's 401K with the match, I would contribute $19.5K and save about $6000 a year in taxes. The match is OK at 50% but it only gives about an extra $600 in total. Almost everyone says "401Ks are great and you need to have one otherwise NGMI in retirement". But what is the opportunity cost of contributing to a 401K?
I am not sure if that is really worth the opportunity cost of having less dollars today, especially when we may get the opportunity to buy cheap assets in RE/ Crypto for the next 6-18 months. If Bitcoin goes to 100K / coin in 5 years, it is obvious that the 19.5K/year would have been much better served simply DCA into Bitcoin. Even just DCA into stable dividend stocks seems to be better. So, I am skeptical that 401Ks are really worth it for a smart and ambitious young person for these reasons, but also because:
1) I don't want to wait 40 years to withdraw the contributions penalty free when It is likely I will be financially independent in just 6 years, and I should be "rich" in 16 years. therefore I will not "need" my 401K fund.
2) I don't know how 401Ks will change in the future, and what the tax rates will be (likely higher it seems)
3) I don't trust other people to manage my money, especially when there's a stunning lack of transparency with how your 401K money is used. Combined with a tremendous incentive for companies to essentially gamble with their customer's 401K money, it seems like a large risk
4) I don't want to introduce an extra administrative burden. Even just spending 5 minutes a month on your 401K costs you an hour in lost productivity in a year.
5) Lack of control over your own funds.
6) There seems to be almost unanimous agreement from "normal people" that a 401K is "great". That makes me suspicious that it's not as great as it seems.
However, I do have a ROTH IRA, but that's different. Maybe I could rollover my 401K into some of my ROTH after paying a conversion fee.
I can certainly see how having a 401K is better than nothing if you're the typical American. Because they're not investing in anything regardless. If they didn't have a 401K, that money would be spent on BS like new TV, Xbox, unnecessary cars, etc. But we're not normal. We're financially responsible. And unless I am missing something, that contribution money could be used for much better opportunities.
Please let me know what you think and if i'm missing something. Thanks again
What is one thing we can do/modify to improve financial education in the United States?
Thank you for setting this up, ser. Deeply appreciate it and I hope to see this be a monthly occurrence if it makes sense for you.
Question: Do 401Ks make sense if you're a smart young person and high income? Details below:
I was hoping to have a sanity check by you on this. I estimate that if I maxed out my Employer's 401K with the match, I would contribute $19.5K and save about $6000 a year in taxes. The match is OK at 50% but it only gives about an extra $600 in total. Almost everyone says "401Ks are great and you need to have one otherwise NGMI in retirement". But what is the opportunity cost of contributing to a 401K?
I am not sure if that is really worth the opportunity cost of having less dollars today, especially when we may get the opportunity to buy cheap assets in RE/ Crypto for the next 6-18 months. If Bitcoin goes to 100K / coin in 5 years, it is obvious that the 19.5K/year would have been much better served simply DCA into Bitcoin. Even just DCA into stable dividend stocks seems to be better. So, I am skeptical that 401Ks are really worth it for a smart and ambitious young person for these reasons, but also because:
1) I don't want to wait 40 years to withdraw the contributions penalty free when It is likely I will be financially independent in just 6 years, and I should be "rich" in 16 years. therefore I will not "need" my 401K fund.
2) I don't know how 401Ks will change in the future, and what the tax rates will be (likely higher it seems)
3) I don't trust other people to manage my money, especially when there's a stunning lack of transparency with how your 401K money is used. Combined with a tremendous incentive for companies to essentially gamble with their customer's 401K money, it seems like a large risk
4) I don't want to introduce an extra administrative burden. Even just spending 5 minutes a month on your 401K costs you an hour in lost productivity in a year.
5) Lack of control over your own funds.
6) There seems to be almost unanimous agreement from "normal people" that a 401K is "great". That makes me suspicious that it's not as great as it seems.
However, I do have a ROTH IRA, but that's different. Maybe I could rollover my 401K into some of my ROTH after paying a conversion fee.
I can certainly see how having a 401K is better than nothing if you're the typical American. Because they're not investing in anything regardless. If they didn't have a 401K, that money would be spent on BS like new TV, Xbox, unnecessary cars, etc. But we're not normal. We're financially responsible. And unless I am missing something, that contribution money could be used for much better opportunities.
Please let me know what you think and if i'm missing something. Thanks again