Catch-Up Contributions: How Much Difference Do They Make?
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- เผยแพร่เมื่อ 15 มิ.ย. 2024
- If you’re over age 50, catch-up contributions are a great option. But how much difference do they really make?
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Timestamps
0:00 - Do catch-up contributions make a difference?
1:28 - Catch-up limits
2:02 - Assumptions
2:52 - Estimating living expenses
3:46 - Current retirement savings
4:14 - Projected savings at retirement
5:07 - Projected retirement income
6:37 - Monte Carlo analysis results
7:14 - Should you skip the catch-up contributions?
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-- About Patrick King CFP® --
Patrick King is a fee-only financial advisor in Atlanta and the Founder of Prana Wealth. Over his career, Patrick has helped CEOs, all-star athletes, Grammy-winning artists, and many others build their wealth, retire sooner, and create a legacy. Patrick enjoys yoga, mountain biking, golf, travel photography, and Clemson football.
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You have provided the absolute CLEAREST and most understandable retirement videos I have seen on TH-cam. Thank you so much!
Thank you so much! I'm thrilled you go something from this! 🙏
Thanks for this and all of the great videos you post. It is great hearing financial discussions in such an understandable presentation.
Your example may benefit from a third option. Cathy clearly has the advantage (regardless of the catch-up provision) simply by saving more where Nelly spends more for the next 15 years. A third example of someone who saves like Cathy but does not put it in the retirement account might be a good third option.
Oooh! Great idea, @Andrew! I'm totally adding this to my content queue. Give me a few weeks -- it does take some time to plan these things out, but I'm totally making this video. 🙌
Job well done
Thank you so much, @Jeff B. ! 🙏
Thank you for the helpful content!
We started retirement savings late here and have done our best to use the catch up provisions to help us get to where we are now and where we expect to be in a few years. We have cut our expenses as much as we know how, thanks in part to the pandemic. Hope to start traveling again soon!
Awesome, Cliff! You're making the right moves -- it really is as simple as spending less. I'm sure you'll be back on track (and traveling) before you know it! Thanks for the great comment and the kind words! 🙏
My wife and I are both high earners and in our fifties and have been fully contributing to our catch-up contributions as it is our only tax break. It save us probably near $4000 in federal taxes per year.
Kris -- good call! Sounds like you're exactly who I was thinking about with my comments toward the end. Thanks for the great comment! 🙏
Same here except I am stuffing it all in Roth. In the future you will also. If the tax cuts expire, I have some decisions to make. My wife is a few years younger so hasn’t gotten to where she can do the extra catch up contributions.
when making the monte carlo analysis how can we tell what it factors for? there are many variables such as the possibility of a reduction in social security payments when the trust fund is depleted around 2033 and the impact of Roth accounts on provisional income when calculating taxation of social security benefits as well the cost of medicare premiums. it seems to me numbers are input into the computer and it spits out a probability and a graph but I can't tell what it was programmed to consider.
I kind of feel like this analysis showed me that I don't need to use the catch up contribution. the difference between the two looked negligible to me. 10% after that many years. also they don't seem too far behind to me. 350K at 50 is probably ahead of 80% of the U.S.
Yep me too, that extra money isn't worth a few hundred buck
So sacrificing around $400/month in spending for 15 years yields an additional $400/ month in retirement spending/income for 30+ years
@C G - pretty much!
Can I add to my 401K for last year 2023 before April 15, 2024? Let’s say I have 15k in and I am over 50. Can I still add to it or catch up or does it all have to be before December 31st 2023? Thanks
Would you please explore HSAs?
Will do, Shannon! Don't know why I haven't done a video on them lately! 🙏
I mean it's kind of a no brainer you should max out your 401k contribution if at all possible. It really only costs me 2/3 of the amount I put in because of the tax savings. (24% bracket for federal + 9.3% for CA).
Especially for high-earners in high-tax states! Great call @Larry Kramer ! 🙏
No it depends on your personal situation. With the median incoming United States most people should not be maxing out their 401ks. You should find a balance in between saving and living now that makes you happy. I have never maxed out my retirement plans and I have no need to. My goal isn't to be the richest person in the cemetery, just retirement with 100 to 120% of my working years budget is fine.
I know people who lost half of thier 401 k overnight night and now have too work longer 401 aren't that good if you don't pay attention you can lose your ass I retired at 55 full pension 30 years service go union people!!!!!!
I am contributing $30,000 per year in after tax dollars using catch up contributions for my Roth 401K. I have a pension through work and should receive maximum social security benefits. I am hoping to retire by age 60. In my late forties my retirement fund already passed the seven figure mark. My home equity also passed the seven figure mark.
I will have a military pension, FERS pension, VA disability, and social security at retirement that will equate to around 75% of my current income. I also have a TSP account along with about $250k in savings. My current salary is $110k a year. How much do I need in my TSP account at retirement to fill in the gap?
Thank the taxpayer....
@@pensacola321 Friend, I think you meant to say "Thank the servicemember" for his/her sacrifice and contribution. (Thank you, guyc66, for your service!) ... Guyc66 - I recently took Patrick's suggestion to try out his "On Track?" spreadsheet and corresponding how-to-use lessons. There's a small fee involved, but I was very pleased with the service and info. over-all (I had a few clarifying questions that I wish I could ask, but it was nevertheless still very informative), and I recommend it to those who, like you, are curious about whether you'll have "enough" at retirement. Like you, I'll also have a FERS pension, TSP savings and SS. His spread sheet will also allow you to account for your additional military and VA disability income. Best wishes.
You have all your eggs in one basket. You assume the Fed Govt will remain solvent, as everything you earn comes from them. Sniffy Joe is about to screw us all!
@guyc66 -- there are a lot of variables that are still unknown here, so I can't really say how much you'll need to save with any certainty. However, if you're already going to have 75% of your current income covered, that's a heck of a start! Maybe see if you can live on the amount you're expecting to get in retirement and save the rest? That would be a great way to start, I think.
And thank you for your service! 🙏🇺🇸
Awesome, @jerrym! 🙏 Do you remember what date you bought the spreadsheet? I should have your email -- I'll follow up with you on your questions.
I’m military so after my pension I only need like 400k using the 4% rule to live the same. Of course who wants to settle though :p I’ll make up the difference with my rentals and use the retirement tsp as icing on the cake :D
That's awesome, Michael. I love that attitude. Are your rentals throwing off enough cash on their own? Having that TSP would be a lot of icing on the cake if so! Also -- thank you for your service! 🙏🇺🇸
@@PranaWealth I have 2 rentals, one that my brother lives in so he pays everything at cost and one I have a tenant in. After mortgage, tax, insurance, management, vacancies, repairs, and upgrades it leaves me about 200 a month. Not including equity but it’s a buy and hold home so it’s also just a nice to have.
My plan is to invest in a new rental every 2 years or so and when I retire in 10 I’ll be set. (Roughly 1000 a month in rentals and 3500 from the pension)
Also cutting costs helps, by July I’ll be able to put 65% of my income to savings/investments not including my tsp contributions at 10%.
Michael -- that's awesome. A few years ago, I met someone who did the very same thing. He owned about a dozen rentals and lived off the income. He did very well for himself. With the way rental prices have increased, it sounds like a growth business!
@@PranaWealth The goal for rentals is to ultimately buy and hold. Often people trade up using equity or trade for multiples but at the moment my home is raising in value about 25k a year plus cash flow. I’m going to hold it because when it’s paid off it’ll provide me about 800 (plus raises over the years) in additional income. Can’t beat that :D
Also paid with a va loan so after I was done (about 20k of upgrades and patches) I’m getting 18% return from the Chas flow, not to mention the 125% on the equity annually.
It is unfortunate though when I see all the prices sky rocket, it limits the amount of homes people can afford, and with the shortage of materials and tradesmen, the need of housing has rapidly overtook the amount available driving up costs more.
It gave me an extra $82k when I retired.
That's awesome @jdbucha! That's a nice chunk to tack on to your savings! 🙌
Tax deferred retirement account saving is great.... But not THAT great.... This year is my first year of RMD. We have pretty significant IRA assets, meaning pretty significant current taxation. There is no free lunch. Do some Roth or non IRA investing. You'll be happy....
Correct, it’s a balance. As my years working and saving increased I transitioned into Roth. No free lunch is right.
@V p -- 100% tax-deferred savings is still better than nothing! It's a great first step. However, you're right. Ideally, you can retire with savings in each of the three "buckets": tax-deferred, after-tax, and tax-free (Roth). Great comment. 🙏
Your problem is a problem you created. It has nothing to do with the plan itself. You're responsible for your outcome and you have a great problem to have. Do you know how many people would be willing to have your problem. Of course that being said I'm doing all I can to make sure that doesn't happen to me but the average person would love your problems
My parents started taking their rmds, but did not need the money. They distribute the money to the grand childrens college funds.
If you don''t make 120,000?
exactly.....advice for the rich
@MrGnarus -- I made a video a couple weeks back that looked at the median retirement according to the Bureau of Labor Statistics data. Check it out and let me know if you think that's more representative...
th-cam.com/video/qJDxxjRSDks/w-d-xo.html
@@commonsenseisntcommon1776 of course it's meant to upper income people. Wealth firms do not cater to lower income people
How is it “no fault of their own”? Whose fault is it? I blame them 😉.
@mrsmcdowell02 -- you know, sometimes it is someone's fault! That being said, life is hard and can throw some bad situations at you. Maybe a medical emergency or a messy divorce. Heck, sometimes people just don't know what they don't know. I don't want to be too harsh on folks.
First
Last (for now)
Why always use the people with great jobs , huge salaries and hundreds of thousands saved? How about advice for NORMAL PEOPLE??
I did make a video about the "average" American in retirement:
th-cam.com/video/qJDxxjRSDks/w-d-xo.html
Let me know if you think that's not representative of normal folks? I took the average numbers from the Bureau of Labor Statistics data. Some people agreed and others didn't...
its amazing how people find anything to bitch about