An increasing number of savers are rejecting retirement accounts

[HeadedWest2029]

Re: contributing to a 401(k)
“When you think of the welfare of consumers, to encourage people to tie up assets until 20, 30, 40 years later is bad advice,” Varas said.

https://www.marketwatch.com/story/an-increasing-number-of-savers-are-rejecting-retirement-accounts-in-favor-of-these-investments-2018-05-15

[diapasoun]

This doesn't automatically seem anti-Mustachian to me. After all, what's Step Zero on the investment order? Create an emergency fund you are comfortable with. If this is reflecting increased savings for emergency funds, that's really, really not a bad thing. I do think that it would be a bad idea to have your emergency fund  tied up for 20, 30, or 40 years, difficult to access in any actual emergency. The article's also indicating increased interest in Roth IRAs, which is again smart for a lot of folks -- if you would benefit by making Roth contributions and can't make those in your 401k, why not be tax-savvy and do the Roth IRA instead, after you've met your company's match?

Now, if it's actually reflecting people socking away thousands and thousands of investable dollars well past a reasonable emergency fund, or leaving free money on the table, that's not so sweet. I'm sure there are some people doing that, because hey, I know my parents. ;) Still -- this article isn't discussing that.

[slugline]

But how are the numbers of people with access to good 401(k) plans these days -- ones with opportunities for investing without absurd fees and with various broad-based index funds for diversification? Especially looking at people in the "gig economy," more workers may not have access to a 401(k) at all. In some situations, saving in taxable accounts at a low-cost brokerage may be the best option.

[HeadedWest2029]

Yeah, I suppose those are fair arguments. I guess I'm highly skeptical that people are avoiding 401(k) accounts because they are worried about saving for emergencies or because they're wary of high fees.  I've seen the participation report for our company 401(k) and the cars in the parking lot and it isn't going to emergency savings accounts. 

[HeadedWest2029]

if you would benefit by making Roth contributions and can't make those in your 401k, why not be tax-savvy and do the Roth IRA instead, after you've met your company's match?

RE: ROTH contributions.  I use to feel that way too, but have come around to the ways of GCC and the Mad FIentist
https://www.gocurrycracker.com/roth-sucks/
https://www.madfientist.com/traditional-ira-vs-roth-ira/

[diapasoun]

if you would benefit by making Roth contributions and can't make those in your 401k, why not be tax-savvy and do the Roth IRA instead, after you've met your company's match?

RE: ROTH contributions.  I use to feel that way too, but have come around to the ways of GCC and the Mad FIentist
https://www.gocurrycracker.com/roth-sucks/
https://www.madfientist.com/traditional-ira-vs-roth-ira/

Here's a Q: Is there anywhere that the math is linked for those articles? I've read them before, but I've never noticed a spot where they talk about the math that generates those graphs. You can claim that someone's tax rate in retirement will only be 1%, but I don't see where they point out why/how it's only 1%. That doesn't mean they're wrong -- only that if I'm staking my retirement on someone's claim, I want to see exactly, precisely how they support their claims.

This is probably not the right spot for this; if anyone actually wants to talk about it in any depth, I can pop this over to Investment Alley.

[sherr]

if you would benefit by making Roth contributions and can't make those in your 401k, why not be tax-savvy and do the Roth IRA instead, after you've met your company's match?

RE: ROTH contributions.  I use to feel that way too, but have come around to the ways of GCC and the Mad FIentist
https://www.gocurrycracker.com/roth-sucks/
https://www.madfientist.com/traditional-ira-vs-roth-ira/

Here's a Q: Is there anywhere that the math is linked for those articles? I've read them before, but I've never noticed a spot where they talk about the math that generates those graphs. You can claim that someone's tax rate in retirement will only be 1%, but I don't see where they point out why/how it's only 1%. That doesn't mean they're wrong -- only that if I'm staking my retirement on someone's claim, I want to see exactly, precisely how they support their claims.

This is probably not the right spot for this; if anyone actually wants to talk about it in any depth, I can pop this over to Investment Alley.

I don't know if they have the math actually spelled out anywhere, but it all stems from the assumption that they're withdrawing so little. People are taxed on "income" not total wealth, and in retirement your "income" will be merely how much you decide to take out of the Traditional accounts.

In gocurrycrackers, which is where the 1% comes from, they're talking about a couple only withdrawing $22,700 per year. In 2014 the Married Filing Jointly Standard Deduction was $12,400, plus 2x the personal exemption of $3,950. So that's the first $20,300 that is completely tax-free. They only start paying 10% income tax on the last $2,400 of that $22,700, or $240 in tax, and $240 is about 1% effective tax rate on an income of $22,700.

My family currently spends about $40k a year, so our effective tax rate would be higher (although not by a lot). $12,400 + 4 * $3,950 (2 kids + 2 adults = 4 personal exemptions) = $28,200 tax free. And then we would pay 10% on the remaining $11,800. $1,180 in taxes on a $40,000 income is an effective tax rate of 3%.

That process is what the graph in GoCurryCrackers is trying to represent visually.

Trump's tax plan increases the standard deduction but eliminates with the personal exemptions, except I think Rubio made them put in more tax credits for poor families with kids. I'm not really familiar with all that since I haven't done my taxes yet. But bottom line is: low "income" in retirement means you are taxed like any other low-income person, aka you don't end up paying much in income tax. I don't foresee that changing any time soon, so you can trust that you'll be able to take money out of Traditional accounts at a very low tax rate.