Every month I contribute $1,500 to my 401K so that by the end of the year, the 401K is maxed out at $18,000. Unfortunately, $18,000 a year is a ridiculously low amount of money to save for retirement if you really do the math. After 10 years, you might have $250,000, and after 30 years you might have $800,000 to $1.2 million depending on the markets and your employer’s match. Whatever the case may be, the 401K is simply not enough money to retire on, especially since you need to pay taxes upon distribution.
The government needs to get it together and raise the amount of 401K contribution for those in the later part of their lives. How is it that a 40 year old executive who makes $250,000 can only contribute the same amount in his 401K as a 23 year old kid out of school making $40,000? It just doesn’t make sense. Instead, the government should allow pre-tax contributions to increase by $5,000 every 5 years so that by the time one has served 20 years in the work force for example, s/he can contribute $35,000+ a year to their 401Ks until retirement.
Let’s talk about the pencil geek IRA retirement plan for example. If you’re one of the fortunate who are allowed to contribute, you can only fund $5,000 a year! Whoopdeedoo! $5,000 X 30 years later, assuming you don’t lose it in the market yields $150,000-$300,000 maybe! Great, just enough to buy me a Honda Accord sedan when I’m grey. Get it together government and raise that $5,000 contribution amount higher with better tax incentives. Furthermore, let hard working Americans who make over $120,000 the opportunity to contribute regularly, and not just through odd year loop holes. Empower people to want to save for their future!