How much money should a 27 year old be putting into a 401k?

Asked by lisa

7 Answers

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Answered by Christopher Nesbitt, Insurance Agent in San Clemente, CA
This is an excellent question, Lisa, and one which more 27-year-olds should be asking, especially since there are no guarantees that Social Security will be there for you at retirement. The answer is dependent on many factors, including what kind of investment funds are available, what rate of return, is there a company match, etc. But there's an even bigger part of the equation missing... what are your goals at retirement? And at what age do you want to retire? All these things and more need to be considered. Most advisers would calculate that, generally speaking, if a 27 year-old wants to retire at 65, and makes $50k, they'd need to save 18% of their income to have $2.1mil at 65, which is what would be needed to retire in the typical scenarios. | 01.17.15 @ 18:48
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
Answered by Willard R. Brumbaugh, LUTCF in Victorville, CA
Since 401(k)s only defer taxes, not eliminate them, contribute only what your employer matches. | 05.22.15 @ 03:32
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
A
Answered by AC
Before you put another dime into a 401K make plans for your health retirement.
Retirement is not the "golden years", it is the "olding years". Like a car, you need repairs, and a place to rest or retire to where someone will come along and help you.
There are places you can invest in or ways to invest for this. Long Term Care is still the best way to go, but meet with your insurance broker and get your whole life and long term care. | 05.22.15 @ 20:45
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
Answered by Phillip Christenson, CFA in Plymouth, MN
Whole life policies and Long Term Care insurance are not investments. If you are 27 you really need a reason to want to purchase long term care at your age. As well whole life is almost never a good idea at any age. Your 401k is a good way to save for retirement. Make sure you are at least putting in up to your employer match - that's free money. Then you should be contributing to an IRA or Roth IRA outside of your employer. Once you max out your IRA ($5,500 in 2015) then you should start adding more to your 401k until you hit the max on that ($18,000 in 2015). This is just speaking in general terms. You need to look at your cash flow and your personal financial goals to determine exactly what you should be doing. | 07.28.15 @ 19:20
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
Answered by Willard R. Brumbaugh, LUTCF in Victorville, CA
I agree that contributing up to the employer match is a good strategy. Beyond that contributing to Roths is useful.

I repeat as I have said before, tax deferral does not equate to tax savings. Piling up money in tax deferred plans increases the likelihood of retiring at a higher tax bracket than what was one's tax bracket while working. This almost assuredly will result in taxation of one's Social Security income. | 07.29.15 @ 02:43
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
Answered by Phillip Christenson, CFA in Plymouth, MN
In general you should invest up to company match, then max out your roth, then max out your 401k.

You do know that you are not taxed on the money deferred into a 401k, right? Yes I understand that you have to pay taxes on that money when it comes out of the account but to make your statement you would have to completely ignore the time value of money. As well, there could be multiple opportunities to manage the tax brackets and get the money out at a reasonable tax rate, prior to taking social security. | 07.29.15 @ 16:19
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
W
Answered by Wiser
I'd suggest you invest as much as is necessary to receive dollar matching by the employer. If they will match your contribution up to 5% then I'd say put in 5%. However, it would be good to consider other investment options for retirement as well. Depending on income levels a Roth IRA would have the advantage of allowing withdraws in retirement with not tax on the interest earned. So put in the 401k whatever the company matches, and then contributions beyond that most likely in an IRA. carey | 09.21.15 @ 00:16
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$commenter.renderDisplayableName() — {comment} | 12.06.16 @ 17:59
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