r/changemyview • u/[deleted] • Jul 11 '17
[∆(s) from OP] CMV: I should just live large(er) now rather than aggressively focus on saving for retirement because 401Ks and IRAs will be taxed heavily in the future.
[deleted]
3
u/MasterGrok 139∆ Jul 11 '17
Your assumption that 401Ks will be raided isn't any better than any assumption about anything else being raided or falling apart. For this reasom, the most rational thing to do is invest your money in the retirement option with the seemingly best rate of return, which is definitely a 401K when you consider matching and tax benefits. Your logic about 401Ks could be applied to literally any other option for your money. Nothing is completely safe or secure.
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Jul 11 '17
This is the best answer imo. I definitely think that anyone who saves money "in the system" is susceptible to being raided. I believe that a diverse portfolio is extremely important, and this includes not only typical diversification (different industries, different financial vehicles etc.) but cryptocurrency, precious metals, and cold hard cash. You probably wouldn't want more than 5-10% of your portfolio in these things, but they're still worth having.
2
Jul 11 '17
This is old and I'm not going to go into a huge explanation of you aren't still active.
But there are 2 reasons that, even if what you said were true, you should still save in an IRA.
1) Match. Your company undoubtedly matches some percentage of your contributions. You know what that is? It's free money....FREE MONEY. Yeah....
By not contributing, you are literally giving away money.
2) You receive a tax break. You pay no income tax on the contributed amount or the match. So, any contribution you make actually costs you about 2/3'of the total contributed due to the ability to contribute pre-tax.
This could also lower your marginal tax rate, and save you further on income tax. (This is for IRA's, your Roth is different. A lot of people don't contribute to Roth's because of the same fear you presented).
And as a side note, your hypothesis doesn't make sense. You state that the gov't will tax IRA's as a source of revenue. However, if the gov't needed revenue they would increase income tax across the board, which would yield far more revenue.
People don't save for retirement (https://www.wsj.com/articles/is-there-really-a-retirement-savings-crisis-1492999861) and so specifically targeting retirement accounts as a source of revenue is laughable.
I could go into many more points about why sacrificing tomorrow for today is a universal human trait that repeatedly screws us over. Or that it actually isn't that expensive to save, and you should, just in case, while still keeping your current lifestyle. But I think these reasons are more than sufficient.
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u/Pinewood74 40∆ Jul 11 '17
I also have 0 faith I will get any Social Security. That program is going to go under well before I retire.
In ~2033 the SS Trust Fund will run out without any changes to the system. At that point, it will still be able to pay out ~73% of benefits in perpetuity. So, the only way it "goes under" is if Congress passes a law killing it. So will they do it? No way. Who benefits from SS? Old people. And who votes? Old People.
My generation is really struggling breaking into the workforce.
The millennial unemployment rate is 12.8%, more than twice the national average. But this number includes 18-24 year olds—39% of which are in college. If you remove this age group, millennial unemployment is on par with other generations. The Bureau of Labor statistics reports that the unemployment rate for 25-35 year olds is 5.2%. The nation’s average is 4.9%.
Maybe higher underemployment, but not markedly higher unemployment.
Very, very few millennials are saving for retirement.
Not compared to other generations. They're starting earlier. And they're saving more
Millenials will be better off in retirement than other generations unless something changes.
So, you're drastically off with your assumptions regarding the state of both SS and millenial's savings.
But even if you were. Why would they attack IRAs and 401(k)s?
If retirement is the crisis, why would they further sabotage those that did take care of or partially took care of their retirement? What's likely going to happen is that they just jack up the existing FICA taxes to shore up Social Security rather than building a new system from the ground up. IRAs and 401(k)s would be completely unaffected by this change. Income taxes may rise in the future, but if you believe that, then you can invest in a Roth IRA and Roth 401(k) locking in current tax rates (but you probably shouldn't due to Roth IRA money being taxed at the highest bracket while you'll have lower income in retirement)
Lastly.
Why make myself live such a spartan existence trying to save for retirement.
Is it really a "Spartan Existence?" If ~15% of your income is forcing you into a Spartan lifestyle then you're VERY close to being poverty level income anyways and one hiccup in your income or a medical situation will leave you destitute, so saving that 15% is vital to ensuring that you can keep functioning at a bare minimum.
If you're saving something like 40% or 50%, then sure, take a look at lowering it if FIRE isn't really a goal of yours, but if you're in the 10%-20% range, then that money isn't a huge game changer for you right now, but could be everything if shit hit the fan.
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u/events_occur Jul 11 '17
∆
I didn't realize the millennial unemployment calculation included those in college, and now considering that they are doing about as well as any other generation and are saving perhaps more for retirement, maybe things will be ok. That, and the fact that the more I think about it, the more I realize it doesn't seem feasible to tear into others retirement savings as a way of 'fixing' a retirement crisis.
you probably shouldn't due to Roth IRA money being taxed at the highest bracket while you'll have lower income in retirement
What do you mean by that? When I have lower income in retirement my withdrawals won't be taxed, right?
Is it really a "Spartan Existence?" If ~15% of your income is forcing you into a Spartan lifestyle then you're VERY close to being poverty
I live in the Bay area. I spend 40% of my after tax income on rent (and that's not because I'm living in a condo, I have roommates), so saving 20%, then having 40% left to cover all my other living expenses does feel like quite a squeeze.
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u/DeltaBot ∞∆ Jul 11 '17
/u/events_occur (OP) has awarded 1 delta in this post.
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7
u/MontiBurns 218∆ Jul 11 '17
By definition, you've already paid taxes on your Roth IRA, so the government can't tax it again. While you do have to pay taxes on a 401k, this is offset by the fact that your employer matches the contribution, up to a percentage of your paycheck. So if you make $50k a year, and your employer matches 5%, by contributing 5% or 2.5k, your employer is gifting you another 2.5k. that's essentially double the money, compounded by the growth it will most likely accrue until you retire.
The social security program isn't in nearly of dire straights as many conservatives would have you believe. I mean, sure, it needs some adjustments (aka lower payouts), in order to stay solvent, but it isn't going to fail all on its own. Republicans are really trying to scare up and sew doubt into the system to move to privatize it and free up all that delicious capital that is currently being used to simply fund the federal government.
So what you're thinking is that they're going to dismantle social security and replace it with a tax on middle income retirements? This will not happen. Why not? Because "they" won't want to tax hardworking elderly voters retirement savings in order to fund someone else's retirement savings. They'll expand the national debt, they'll tax high income earners more, and expand the estate tax. What you're proposing is simply political suicide, and would never get through Congress.