Most Popular Archives - Financial Samurai

How Much Should People Have Saved In Their 401Ks At Different Ages

Posted by Financial Samurai 947 Comments

Art by Colleen Kong at KongSavage.com

The 401k is one of the most woefully light retirement instruments ever invented. The maximum amount you can contribute is $19,500 for 2020, up from $19,000 in 2019.

The worst is the IRA which limits you to contributing only $6,000 in pre-tax dollars only for individuals making under $72,000 a year and married couples making under $119,000 a year.

Meanwhile, you have to make less than $122,000 a year as a single or $193,000 as a married couple for the privilege of contributing the maximum $6,000 in after- tax dollars to a Roth IRA, which I do not recommend before maxing out your 401k.

Give me a pension that pays 70% of my last year’s salary for the rest of my life over a 401k or IRA any time! At least with the 401k, anybody can contribute.

The average 401k balance as of November 2019 is around $106,000 according to Fidelity’s 12 million accounts, thanks to consistently strong returns in the S&P 500 since 2009.

Unfortunately, $106,000 is an incredibly low amount given the median age of an American is 36.5. Further, the median 401k amount is closer to only $30,000.

As an educated reader who is logical and believes saving for retirement is a must, I’ve proposed a table that shows how much each person should have saved in their 401k’s at age 25, 30, 35, 40, 45, 50, 55, 60, and 65.

We stop at 65 because you are allowed to start withdrawing penalty free from your 401k at age 59 1/2. Meanwhile, I pray to goodness you don’t have to work much past 65 because you’ve had 40 years to save and investment already!

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Ranking The Best Passive Income Investments

Posted by Financial Samurai 265 Comments

Passive Income Streams Allows You To Be Free

In order to relax, you must first work very, very hard!

After about the 30^th day in a row of working 12+ hour days and eating rubber chicken dinners at our company’s free cafeteria, I decided I had enough.

There was no way I could last for more than five years working in a pressure cooker environment like Wall Street. I became obsessed with generating passive income starting in 1999, the year I graduated from college.

We’ve discussed how to get started building passive income for financial freedom before. Now I’d like to rank the various passive income streams based on risk, return, feasibility, liquidity, and activity.

The rankings are somewhat subjective, but they are born from my own real life experiences attempting to generate multiple types of passive income sources over the past 20 years.

The passive income journey is a long one. But thanks to innovation and technology, the ability to generate meaningful passive income is accelerating!

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The Rise Of Stealth Wealth: Ways To Stay Invisible From Society If You Have Money

Posted by Financial Samurai 258 Comments

Invisible Man in Boller Hat Becoming wealthy has never been easier in America thanks to quantitative easing, improved financial education, a raging bull market since 2009, and a widening safety net.

Surviving as a wealthy person on the other hand, has never been tougher as the wealth gap continues to widen.

The government goes after you if you make much more than $200,000 a year (Medicare tax, AMT, deduction phaseout, credit eliminations, education tax, Net Investment Income tax).

If the government doesn’t get you, regular citizens will. Who did you cheat or rob to get to where you are? Is the common attitude among those who feel left behind. This is a real problem for those who want to make it big in the land of dreams and hand guns.

Freedom is one of America’s greatest attributes. Yet, if you go too far on the income curve you’ll start feeling like a prisoner to society. Despite the rich giving more to charity in one year than many others will give in their lifetimes, people will protest their wealth and hate them forever. Despite paying more taxes each year than what the median household makes, the rich person will be demonized for not paying his or her fair share.

Class warfare is no fun, even if you do have the financial means to own a bazooka.

Most readers here are ambitious folks who want to improve their financial health. Thanks to disciplined savings and investing habits, in another 10 years, I’m sure everybody is going to be that much wealthier, if not millionaires. But once you get to where you are going, you’ll wonder what’s next. Never lose site of the fact that it’s really the journey to financial independence that’s most rewarding.

When society turns their back on you for being successful, just recollect on all your struggles and take a deep breath. Be proud of your accomplishments because you know you’re not just doing it for yourself, but for your family as well.

You don’t have to be ashamed for not being the dumb ass in high school who thought it was cool to skip class every week to smoke weed. You shouldn’t feel bad that you worked summer internships during college while your buddies went off to play. And you should certainly not feel embarrassed by your frugal habits and smart investments once you found a job.

If you’re getting up at 5am every morning to make extra income before work, good on you! Feel proud of working more than 40 hours a week and not complaining why you can’t get ahead.

Unfortunately, society has a fantastic way of discrediting your achievements. “Nobody is self made,” and “You didn’t build that,” are my two favorite retorts. Just try taking yourself completely out of the equation and see where that logic goes when there’s nobody to think, dream, and execute. When you are outnumbered, resistance is futile. You must blend in and rage with the rest of them.

With the below suggestions you’ll be able to better walk amongst the shadows without fear of retribution any longer. Your family will be more guarded from bullies lurking to recondition your children every chance they get.

Once you finish reading this post, never speak of its matters beyond your immediate family and friends again. We’ve got to protect our own little community on the web.

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The Average Net Worth For The Above Average Person

Posted by Financial Samurai 884 Comments

Everything is relative when it comes to money. If we all earn $1 million dollars a year and have $5 million in the bank at the age of 40, none of us are very wealthy given all our living costs (housing, food, transportation, vacations) will be priced at levels that squeeze us to the very end.

As such, we must first get an idea of what the real average net worth is in our respective countries, and then figure out the average net worth of the above average person!

According to the Federal Reserve’s Triennial Consumer Finance Survey, the average net worth for the following ages are:

Under 35: $76,200

35-44: $288,700

45-54: $727,500

55-64: $1,167,400

65-74: $1,066,000

75+: $1,067,000

Not bad. But these numbers are skewed by the super rich who have generated an enormous amount of wealth since the financial crisis.

Although the average net worth for all Americans is $692,100, the median net worth is a more pedestrian $97,300.

Let’s look at the average net worth for above average people.

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Explaining Why The Median 401(k) Retirement Balance By Age Is Dangerously Low

Posted by Financial Samurai 174 Comments

You likely won’t be able to live off your 401(k) alone in retirement, but you should be able to combine your 401(k) with alternative savings, other passive investments, and Social Security to live a financially free life when the time comes to withdraw at the age of 59.5. Most Americans don’t have pensions.

The reality is that the median account balance in the U.S. is only around $72,000 for 55-64 year olds in 2019 according to Vanguard, one of the largest 401k managers. The average 401k balance for 55-64 year olds is roughly $178,000.

But the average is screwed up to due the super wealthy. Even with $178,000 in your 401k at retirement age, you aren’t going to be living it up for the next 20 – 30 years without alternative sources of income.

Average and Median 401k Balance By Age Group - Vanguard

Source: Vanguard balances

According to data from Fidelity, here’s the average 401k breakdown by age in 2018:

Ages 20 – 29: $9,900

Ages 30 – 39: $38,400

Ages 40 – 49: $91,000

Ages 50 – 59: $152,700

Ages 60 – 69: $167,700

Ages 70 – 79: $160,200

Given the median age of Americans is 35.3 according to the US Census Bureau, the median 401(k) balance per person should be closer to $150,000 – $500,000 according to my 401(k) retirement savings guide instead of these pitifully low levels.

In this article, I’d like to share some stories on what happened to all the missing savings because we all know we should be maxing out our 401k every year for as long as we work.

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CD Investment Alternatives: Why I’m No Longer Investing In CDs

Posted by Financial Samurai 47 Comments

Hawaiian Sunset Certificates of deposits, aka CDs have long been a stable part of my overall investment portfolio. Whether it was a bull market or a bear market, I would always invest roughly 20% of every dollar saved in the longest CD possible since college.

Although I lost around 35% of my net worth during the worst of the crisis in 2009, I knew that even if everything went to hell I’d have at least 20% of my net worth intact. The feeling was very comforting, especially when yields were over 4%.

Unfortunately or fortunately, times have changed as CD rates have continued to come down over the years. Rates have inched up about 0.5% since Trump’s presidential victory on expectations of higher growth and inflation. However, rates continue to remain depressed and will likely stay low for a long time due to economic slack, productivity growth, and technology.

As a result of lower interest rates for longer, everybody should AT LEAST:

1) Refinance their mortgages, call their credit card companies, and consolidate their student loans. Refinancing a mortgage or locking in a new mortgage at current low rates is a no brainer given rates are back down to two-year lows in 2019.

2) Look for higher returning investment opportunities in a risk appropriate manner.

3) Hunt for high yielding CDs and savings accounts online. Take a look at CIT Bank for one of the highest yielding savings account online. Their rates are regularly much higher than comparable banks.

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Recommended Net Worth Allocation By Age And Work Experience

Posted by Financial Samurai 164 Comments

Squaw Valley USA, Lake Tahoe As of 2H2019, with the average savings rate hovering around 5%, a median 401(k) of only $110,000, and an average 401(k) balance at retirement age 60 of around $230,000, many Americans are financially screwed.

Just do the math yourself. Add the average Social Security payment per person of $18,000 a year to a 4% withdrawal rate on $230,000 and you get $27,200 a year to live happily until you die at 85. That’s clearly not enough!

Let’s think about this some more. You spend almost 40 years of your life working just to live off minimum wage in retirement. Hopefully you were able to live it up during your working years, otherwise, how else can we explain a national sub 5% savings rate?

Blowing lots of money for fun is fine if you expect to live like a pauper when you’re old. The better way to do things is to smooth out your spending across your expected life expectancy to reduce stress and live a much steadier lifestyle.

We’ve talked in detail about the proper asset allocation of stocks and bonds by age. Just know that stocks should be a minority portion of your net worth by the time you are middle age. If you so happen to have 100% of your investment allocation in stocks before retirement and 2009 happens, well then you are out of luck.

Calculate how much you lost, equate your loss to how many years it took you to save the value of the loss, and expect to work that many more years of your life. Now that’s depressing.

We also found out that the median net worth for 2010 plunged to $77,300 from a high of $126,400 in 2007. Meanwhile, the median home equity dropped from $110,000 to $75,000. In other words, the median American’s net worth almost ENTIRELY consists of home equity!

Take a look at this chart highlighting how a record high 30% of American households have no wealth outside their primary residence.

A record high number of households have zero wealth outside their primary residence

Finally, despite a ~400%+ rebound in stocks since the bottom of the crisis a lot of people missed out on the recovery as evidenced by a tremendous amount of cash still sitting on the sidelines due to fear.

Anybody who has lived through the 1997 Russian Ruble crisis, the 2000 internet bubble, and 2006 – 2010 housing correction probably has a good portion of their net worth in CDs, bonds, and money markets because they’ve been burned so many times before.

The percentage of Americans that own stock has steadily declined over time

The question we must all ask ourselves is, “What is the right net worth allocation to allow for the most comfortable financial growth?” There is no easy answer to this question as everybody is of different age, intelligence, work ethic, and risk tolerance.

I will attempt to address this question based based on what has worked for me, and what I believe will work for anybody who is serious about building enduring financial wealth for the long run.

I’ve spent over 30 hours writing and revising this post in hopes that every Financial Samurai reader can build a rock steady net worth portfolio to make money in good times and lose less in bad times.

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How To Make Six Figures A Year And Still Not Feel Rich – $200,000 Income Edition

Posted by Financial Samurai 275 Comments

One of the great things about America is freedom. Tired of feeling like death living in Chicago, New York City, or Boston during the winter? Why hello San Diego, Miami, or Honolulu! Not feeling there are enough job opportunities for advancement in Detroit? Then come on down to San Francisco! Tired of eating healthy food in San Francisco that costs an arm and a leg? No city can beat the wonderful soul food of New Orleans.

Geo-arbitrage is a term where one can earn and save money in one place and move to a cheaper location to maximize their money. If you happen to own an internet business, then your ability to geo-arbitrage is greatest. I’ve often thought about just relocating to Thailand for several months at a time given friends say they live extremely well off $2,000 a month for two. Given one of my goals is to take 100 hours of intensive Mandarin lessons, I may very well be writing to you from some lower cost country in the future.

75% of the audience comes to Financial Samurai through a search engine like Google. They have a financial problem they are trying to solve. This is huge because it takes initiative to come to grips with one’s finances. But what I’ve noticed over time is that besides the middle class getting pissed off about the widening wealth gap, upper-income earners are also feeling some angst as well.

Over 50% of singles readers and 74% of household readers make over $100,000 a year based on my Financial Samurai income poll (14,000+ so far down below). As a result, I’d like to delve into analyzing how a “typical” $200,000 a year household spends their income. A six figure salary can range from $100,000 to $999,999, so I figure I’d start on the low end for two people. $200,000 is a comfortable household income, but I don’t think it can qualify as rich.

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Disadvantages Of The Roth IRA: Not All Is What It Seems

Posted by Financial Samurai 569 Comments

If you contribute to a Roth IRA

For years I’ve been an opponent of the Roth IRA after the government came out with its tricky dick way to let us all do a “one-time” conversion from our traditional IRAs. The government was so successful in getting people to pay huge sums of taxes on their IRAs up front during the financial crisis that I just shook my head in disbelief.

As a personal finance blogger who wants to help you achieve financial freedom sooner, rather than later, it’s my duty to write this post to help you see the error in contributing or converting to a Roth IRA if you have not maxed out your 401(k).

Of course if the choice is between NOT SAVING and saving via a Roth IRA for your future, then the answer is that one should open up a Roth IRA rather than piss their money away on stupid stuff that depreciates in value. However, do know that you are still pissing money away by giving more of your money to the government. And if the choice is between choosing a traditional IRA over a Roth IRA, choosing the traditional IRA is hands down the way to go.

Please read the reasons why a Roth IRA is not a good idea for most of you. I really hope this article will wake you up to the tremendous government brainwashing that is being conducted to get you to part more with your hard earned money. If you’re still in favor, at least you know the other side of the story and Uncle Sam thanks you!

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Contribute To My 401K Or Invest In An After-Tax Brokerage Account?

Posted by Financial Samurai 89 Comments

foraging The great thing about a 401k is that you are contributing with pre-tax money. The higher the tax bracket you are in, the more tax savings you will have. If you can start withdrawing from your 401k when you’re in a lower income tax bracket, then you’ve successfully conducted some tax engineering to boost your wealth.

The problem with the 401k is the 10% early withdrawal penalty before age 59.5. If the government gets desperate, they can raise the early withdrawal penalty percentage or increase the age limit. I ascribe a 75% chance one of these two things will occur over the next 30 years.

It’s easy to understand why saving for retirement is difficult. The value proposition is that you put your money away in an institution like Fidelity, which operates under the confines of the omnipotent government, who punishes you if you err from their rules, all for the chance that your money will grow decades down the road.

With no assurances from your money manager or the government that your money will be there in retirement, spending money now on instant gratification makes perfect sense. Give me the latest iPhone vs. the potential to have $25,000 more in retirement! Therein lies the dilemma of the 401k contributor who can’t max out his or her account every year, and who therefore doesn’t have excessive after tax savings for liquidity and other purchases.

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