Keep Savings Simple

We had a frosty beverage with an old friend recently that we had not seen since before I stopped working 4 years ago. He was astounded that I had retired early and asked if we had made any lucrative investments to make it happen.

I told him that our investment strategy had been pretty vanilla – simple index funds in our 401ks and after-tax brokerage account. Like many people he seemed surprised and confessed he struggled to put just the minimum in his own 401K to get his employer’s match. He has a nice house on a lake and nice toys in his life, but he never prioritized his retirement savings.

I find that people are always looking for ‘secret’ investment advice even though their 401k is right in front of them. I read recently that the average worker puts about $6.9K in their 401K each year. That’s just 36% of the $19K limit. Employees over 50 can contribute an additional $6K ‘catch up’ contribution.

If you think about it, the great majority of people, a 401K and Social Security may be all they need. Putting as much as you can in your 401K – even with a modest starting salary – would yield the average person a sizable nest egg. It did for us. Especially when you add in the typical employers match.

In the future, when people ask me about their finances, the first question I will ask will be “Are you maxing our your 401K?” If not, then I’ll say “don’t by the sports car or boat”.

We maxed out our 401K accounts from day 1 of working back in 1989. I was amazed at how fast they grew. Personal finance doesn’t need to be difficult does it?

How diligent were/are you in maxing contributions to your 401k?

Image Credit: Pixabay

9 thoughts on “Keep Savings Simple

  1. Extremely diligent. From the first year my employer offered it, to the month I left full-time employment. We made lifestyle sacrifices along the way to secure long-term gain. Our present fully justifies those decisions of the past. “Max” is the only way to go.

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    1. I wouldn’t have expected anything less from you! That said, your approach probably wasn’t typical in your industry where people moved between companies so frequently.

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  2. We were married at 19/20 yrs old, and we built our first house that year (my “second” junior year of college!). I worked full time through out college. My wife graduated two years later, and she got her first “career” job with our local hospital, including a 401k. She hates finances, so handed me her new 401k packet to read, including a simulation to save $1MM. It sounded too good to be true, but we immediately began putting 10% into her 401k. Each year we raised her contribution amount. Four years after graduating, I changed companies to a company that also offered a 401k. I started with 15% contributions and began quickly increasing contributions with each raise. By our early thirties, we were maxing out the IRS limits. We broke the seven figure mark by forty, and were also saving outside 401k’s. However, I was still concerned it wouldn’t be enough to retire early, so I took a substantial portion of my “additional” (non-401k) savings, and began invested in rental real estate in my mid-forties. We bought over fifty rental units over the next six years, and retired at fifty. It’s simply about saving consistently (and early). I never could have dreamed life could be so good. We are very fortunate that we learned to save at an early age. It really is simple…just not always easy! 😉

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    1. Wow – that is some diligence! It’s funny how the little things get you going. When I started at MegaCorp, they had a little slide rule / bro here to show you how quickly your 401K would add up – including the employer match. That simple ‘calculator’ got me going too.

      Real estate, on the other hand, is the investment I never got in to. I’ve always heard it was a great way to build wealth, but never knew enough about it. Good for you – 50 units seems like a lot to manage!

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      1. Fifty units is not as busy as it sounds. We were still working when we started accumulating rentals, so I had to “black box” all my processes. I hired a good local property management team, and stuck with my talents on the investing side. I never wanted to collect rent or fix toilets! But I was really good at building business processes and selecting good long term assets. (I was often involved in the M&A side of the pharma business in my day job, so it was a natural extension for me.) I still only spend about two hours per month on my rentals, and that’s usually balancing accounts once a month and driving by a few units to keep an eye on the exteriors. It’s worked well for us, and is as passive as real estate gets.

        My two daughters are now starting their early career years, and both are already killing it with their respective 401k saving rates. They’ve now had their first few raises, and have quickly increased their savings rates to the point they are already seeing their rewards grow exponentially. Both have also started separate savings accounts for future real estate investments! You know you’ve “made it”…when your kids “get it”!

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      2. That was always my fear with owning real estate – collecting rents and fixing toilets. I would hate to get a call in the middle of the night that someone’s hot water heater broke. I have a neighbor that owns six or seven units and also uses a management company to do all the day-to-day work for him. I didn’t think one could get by with just a couple hours a month of paperwork though. Maybe I should reconsider?!

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    1. Just increasing a percentage or 2 a year when you get your annual raise is a relatively painless way to build up to the max over a few years. That’s good advice I need to make sure to share with my son who is finishing college this spring.

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  3. When I started many years ago, I think I put in about 10% or so for quite a while without any particular plan. Retirement was so far off but it just seemed like a good thing to do. Then about 10 years later I got more in tune with finances and investing and we were in the recession around 2008. I got the idea it would be good to start maxing out my 401k at these lower prices and hopefully it would pay off in the long run. I was putting a lot of my paycheck into it but had some other money in my savings account to pay for any larger bills that might come up. I was also always maxing out my IRA at the same time. I viewed it as a bill I had to pay. Now, its hard to believe how large my accounts have grown without much effort, other than the going to work part of course.

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