Comments on: Maxing Out Retirement = Saving Too Much? http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/ Bridging the gap between saving money and investing Fri, 21 Nov 2008 01:07:21 +0000 http://wordpress.org/?v=2.6.1 By: Susanna Gross http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-152696 Susanna Gross Sat, 17 Nov 2007 02:16:51 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-152696 Hi All, Certainly it's true that lots of folks, especially folks in the higher income brackets need to save more for retirement. But, it is certainly possible to tax defer too much. If your retirement fund exceeds about 25 times earnings when you retire, then your required minimum distributions will be larger than your income was, and your taxes will increase. The point of tax deferral is to avoid taxes. Also, if you are a lower income worker, the value of tax deferral is far less, and it comes at a very high price, taxes on your Social Security income. There are some employers who force their employees to tax defer 20% of income, and those employees, especially in the lower tax brackets, should not be maxing out IRAs. I read an article that showed (very simply) that most Americans would save too much if they merely contributed $2K to an IRA each year. That's because most Americans are not wealthy. If you have tax deferred too much, you can retire early and roll over an IRA to a Roth IRA in stages, paying the income taxes at hopefully a lower rate. If you want to save more so you can retire early, great, just don't tax-defer it all. Cheers, Susanna Hi All,
Certainly it’s true that lots
of folks, especially folks in the
higher income brackets need to save
more for retirement. But, it is certainly possible to tax defer too much. If your retirement fund exceeds about 25 times earnings when you retire, then your required minimum distributions will be larger than your income was, and your taxes will increase. The point of tax deferral
is to avoid taxes. Also, if you are
a lower income worker, the value of
tax deferral is far less, and it
comes at a very high price, taxes on
your Social Security income. There
are some employers who force their
employees to tax defer 20% of income,
and those employees, especially in
the lower tax brackets, should not
be maxing out IRAs. I read an article that showed (very simply) that most
Americans would save too much if they
merely contributed $2K to an IRA each
year. That’s because most Americans
are not wealthy. If you have tax
deferred too much, you can retire early and roll over an IRA to a Roth
IRA in stages, paying the income taxes
at hopefully a lower rate. If you want to save more so you can retire early, great, just don’t tax-defer it all.
Cheers,
Susanna

]]> By: needtaxbreak http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-81750 needtaxbreak Tue, 31 Jul 2007 22:14:15 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-81750 Hi all, Both my husband and I are making low 90s(x2), we dont have a house (we are putting it off because we THINK housing market will go down more next year, meanwhile we will have more money saved for downpayment), I max my 401k; he doesnt have any 401k plan as of yet; in few months he will have a 401K. How can we get a tax break? any advice will be greatly appriciated!! thanks all! Hi all,

Both my husband and I are making low 90s(x2), we dont have a house (we are putting it off because we THINK housing market will go down more next year, meanwhile we will have more money saved for downpayment), I max my 401k; he doesnt have any 401k plan as of yet; in few months he will have a 401K. How can we get a tax break? any advice will be greatly appriciated!! thanks all!

]]> By: Henry @ Binary Dollar http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-37711 Henry @ Binary Dollar Thu, 19 Apr 2007 05:29:07 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-37711 I think it's possible to be saving too much if your money could go elsewhere and be more effective. For example, if you have tons of credit card debt, you should probably pay that off first. I think it’s possible to be saving too much if your money could go elsewhere and be more effective. For example, if you have tons of credit card debt, you should probably pay that off first.

]]> By: Fern http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-37466 Fern Wed, 18 Apr 2007 14:02:12 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-37466 I would never discourage anyone from saving as much as possible for retirement, as there are so many unknowns (the cost of healthcare and long-term care among them), HOWEVER, as i was cleaning up an fat file of old personal finance articles in a file i've got i came across one from 1998 that i found worth re-reading. It said that for many years now, tax-deferred savings has been the mantra for all of us but that for some folks, especially for those in low to moderate income levels, tax-deferred savings may come back to haunt you when you're in retirement. That's becus it is not entirely a given that you will be in a lower tax bracket when you retire. Over the long term, taxes always seem to be inexorably increasing, so in a sense, you might say that chances are you'll be paying more in taxes 20 or 30 years down the road regardless of what tax bracket you're in. So according to this article, you might be in for a nasty surprise. I think that at least when it comes to a 401k plan with an employer match, the benefits of contributing far outweigh the risk of having accumulated so much for retirement that it bumps you into a higher bracket. However, I have been slow to convert most of my traditional IRAs to Roths as i'm now in the 25% tax bracket ($54K income) and am not convinced that my bracket will change when i get into my 60s since the 25% bracket goes from something like $30k up to $75K. I would never discourage anyone from saving as much as possible for retirement, as there are so many unknowns (the cost of healthcare and long-term care among them), HOWEVER, as i was cleaning up an fat file of old personal finance articles in a file i’ve got i came across one from 1998 that i found worth re-reading.

It said that for many years now, tax-deferred savings has been the mantra for all of us but that for some folks, especially for those in low to moderate income levels, tax-deferred savings may come back to haunt you when you’re in retirement. That’s becus it is not entirely a given that you will be in a lower tax bracket when you retire.

Over the long term, taxes always seem to be inexorably increasing, so in a sense, you might say that chances are you’ll be paying more in taxes 20 or 30 years down the road regardless of what tax bracket you’re in. So according to this article, you might be in for a nasty surprise.

I think that at least when it comes to a 401k plan with an employer match, the benefits of contributing far outweigh the risk of having accumulated so much for retirement that it bumps you into a higher bracket.

However, I have been slow to convert most of my traditional IRAs to Roths as i’m now in the 25% tax bracket ($54K income) and am not convinced that my bracket will change when i get into my 60s since the 25% bracket goes from something like $30k up to $75K.

]]> By: j http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36859 j Tue, 17 Apr 2007 00:39:48 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36859 75,000 incomes, 95,000 incomes - so sick of reading about rich people all the time. The median income isn't that high and yet everything in the world seems to assume everyone is rich. 75,000 incomes, 95,000 incomes - so sick of reading about rich people all the time. The median income isn’t that high and yet everything in the world seems to assume everyone is rich.

]]> By: Broke Now, Rich Later » Carnival of Personal Finance #95 (part #1) http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36788 Broke Now, Rich Later » Carnival of Personal Finance #95 (part #1) Mon, 16 Apr 2007 20:47:04 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36788 [...] Maxing Out Retirement = Saving Too Much? - Offers a propert retort to those who say that maxing out your tax advantaged retirment savings is saving too much.   I definately agree. I am in roughly the same income range but have a stay at home wife and 2 kids. I max out a 401k, 2 IRAs, and an HSA. I can still afford a $1500 a month house payment and we are taking 4 total vacations this year.  Now, if this was someone making $40 a year, that would be different.  [...] [...] Maxing Out Retirement = Saving Too Much? - Offers a propert retort to those who say that maxing out your tax advantaged retirment savings is saving too much.   I definately agree. I am in roughly the same income range but have a stay at home wife and 2 kids. I max out a 401k, 2 IRAs, and an HSA. I can still afford a $1500 a month house payment and we are taking 4 total vacations this year.  Now, if this was someone making $40 a year, that would be different.  [...]

]]> By: No Credit Needed » Blog Archive » Carnivals, Network Updates, and Articles To Read http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36749 No Credit Needed » Blog Archive » Carnivals, Network Updates, and Articles To Read Mon, 16 Apr 2007 17:58:43 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36749 [...] a comment I left on his site, about prioritizing your retirement accounts. Personal Finance Advice writes an interesting article about saving TOO MUCH for retirement!?! Consumerism Commentary writes about high schools teaching personal finance. Aimee writes about [...] [...] a comment I left on his site, about prioritizing your retirement accounts. Personal Finance Advice writes an interesting article about saving TOO MUCH for retirement!?! Consumerism Commentary writes about high schools teaching personal finance. Aimee writes about [...]

]]> By: broknowrchlatr http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36672 broknowrchlatr Mon, 16 Apr 2007 13:02:56 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36672 I definately agree. I am in roughly the same income range but have a stay at home wife and 2 kids. I max out a 401k, 2 IRAs, and an HSA. I can still afford a $1500 a month house payment and we are taking 4 total vacations this year. Now, if this was someone making $40 a year, that would be differnt. I definately agree. I am in roughly the same income range but have a stay at home wife and 2 kids. I max out a 401k, 2 IRAs, and an HSA. I can still afford a $1500 a month house payment and we are taking 4 total vacations this year.

Now, if this was someone making $40 a year, that would be differnt.

]]> By: Dus10 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36658 Dus10 Mon, 16 Apr 2007 12:02:00 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36658 Well, I certainly think that someone can over save for retirement... but, I think it is rather difficult to do. Even at this savings rate, there are plenty of things to consider that can show how this is just proper planning. If he is young (which is our perspective, here), then he is getting in as much money now, while he is young, as possible. This is the best time to make large contributions. If it is done for the first ten years of a career, it will be able to have huge gains over the long run. Then, one can scale back a bit later for things like homes and saving for the education of any offspring. If he is old (which is not the perspective here), then perhaps it is just "catch up" time. This would actually mean that it may be too low. Well, I certainly think that someone can over save for retirement… but, I think it is rather difficult to do. Even at this savings rate, there are plenty of things to consider that can show how this is just proper planning.

If he is young (which is our perspective, here), then he is getting in as much money now, while he is young, as possible. This is the best time to make large contributions. If it is done for the first ten years of a career, it will be able to have huge gains over the long run. Then, one can scale back a bit later for things like homes and saving for the education of any offspring.

If he is old (which is not the perspective here), then perhaps it is just “catch up” time. This would actually mean that it may be too low.

]]> By: Carnival of Personal Finance » Carnival of Personal Finance #96 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36635 Carnival of Personal Finance » Carnival of Personal Finance #96 Mon, 16 Apr 2007 11:17:44 +0000 http://www.pfadvice.com/2007/04/13/maxing-out-retirement-saving-too-much/#comment-36635 [...] Maxing Out Retirement = Saving Too Much? [...] [...] Maxing Out Retirement = Saving Too Much? [...]

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