Comment by jandrewrogers | Hacker News Reader

Comment by jandrewrogers | Hacker News Reader

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A limitation of this study is that it defines “retirement savings” as money in literal retirement accounts. Due to the perverse structure of how most retirement accounts are tied to employment and the rules around them, there is no vehicle for a significant percentage of Americans to actually put significant savings into retirement accounts regardless of income. As a consequence, a not small subset of Americans have much or all of their retirement savings elsewhere out of necessity. Another subset has a strong preference for rental real estate, which again is outside of the “retirement savings” rubric even though that is literally their retirement plan.

I know quite a lot of GenX that would be impoverished in retirement as defined in this study that are actually quite well off. This is like the oft-quoted study that shows Americans can’t pay for a $400 expense from savings, where “savings” is defined as “literally having a savings account”, which few people even have anymore regardless of income or wealth. It paints a misleading picture.

It would also help if the government didn’t tie retirement saving so closely to your employer. Retirement saving limits should be the same for everyone, regardless of employment.

To your point about retirement savings- 401k contributions max out at around $20k per year and generally increase a little bit each year. Currently it’s $22,500. If one were to max out their 401k every year from age 20 to age 55 (35 years), they’d have a whopping… $875,000 (at an average annual max of let’s say 25k). For the sake of simplicity I’m not accounting for the contribution limit increasing each year, but I’m also not accounting for inflation, meaning you can think of the 875k in 35 years as though it were today. Everybody knows you can’t comfortably retire on $875k, even with a paid-off house and a paid-off car, you’d get 20-25 years out of that amount… if you retire at 55, that only gets you to 75-80, which is close to average in the US, but average just means half of us will live to be older than that. So two takeaways here: 1. Ain’t nobody retiring at 55. 2. Retiring is realistic when the stock market delivers its trademark gains, but elsewhere in the world, index funds often net you around 0% ROI over a span of multiple decades (see Japan’s NIKKEI from 1995 to 2020- flat). I’m not forgetting about social security, our politicians are. I wish I could opt out of it.

> For the sake of simplicity I’m not accounting for the contribution limit increasing each year, but I’m also not accounting for inflation, meaning you can think of the 875k in 35 years as though it were today.

You're also not accounting for any income from the principal, which even invested in bonds would mostly keep up with inflation.

Technically, the contribution limits for 401k are currently $66,000 but your employer has to do the heavy-lifting, though that won’t happen at most employers. You can thread the needle under very narrow circumstances to effect this situation by being appropriately self-employed with a number of constraints but it isn’t easy or common.

The US retirement system strongly and preferentially benefits corporate lifers.

It benefits people who can structure things such that they and a bunch of their family members are “employed” by a “company” that just happens to do the extremely-rare thing of maxing out the employer-side contribution.

At least I assume that’s the scam. Almost no one working for a normal company sees the max contribution, certainly, even high earners.

Hah even in tech it’s very common for a 401k match to have a 4-5 year vesting schedule and max out at under 6%. The only people contributing 66k/year to their 401k accounts are Tim Cook and Friends.

The rules around retirement accounts are so ridiculous. There should be no limits on contributions, for example. And they should all be treated as SIMPLE IRA's and let anybody contribute any place they like.

There should be higher limits, but one reason there are limits is so that really wealthy people can't shield all their money from future taxes; we need to let people of more modest means get more gain though. Maybe you could have taxes on the pretax 401k but higher contribution limits (where withdrawals will owe taxes on the gain when you withdraw it), but some limits on roth 401ks, which are post-tax dollars with no tax at withdrawal.

That's kind of a mess of a description. Try 2 - double 401k limits, but still keep some limits so we get needed taxes at withdrawal.

It seems like a Roth IRA would work? But maybe people don’t know about them. And yes, some people prefer real estate.

Roth IRA restricts contribution based on income. Furthermore, the contribution limits are a small fraction of what they are for employer-based retirement accounts, not enough to build a real retirement.

A not small number of high-income Americans don’t qualify for anything but a traditional IRA, which has paltry limits.

It’s worth mentioning that the income limit for contributing to a Roth IRA does NOT apply to Roth 401k accounts, which is likely another “incentive to keep working for the man”. Sole proprietorships/startups and their employees are punished severely for taking people out of the “corporate workforce”, and this is one such way.

My favorite way is paying Uncle Sam almost 40% in taxes on income made as a sole proprietor. Bad cog! Bad!

As a sole proprietor, you can open a solo 401(k) and contribute up to $66k pre-tax in 2023. Seems like a pretty good deal to me.

Now healthcare as an individual is another matter…

Everyone with at least $6500 in earned income can contribute $6500 per year into an IRA, regardless of high-income limits. If you make over a certain amount, the traditional contributions are not tax-deductible. If you make even more, you can't contribute directly into a Roth IRA however EVERYONE can make after-tax contributions to their IRA and then do a "backdoor" conversion to their Roth.

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