Some High Earners Stop Maxing Out 401(k)s

One of the stories that caught our audience's attention this week is whether to maximize your contributions to, for one case, because some high earners are now questioning that strategy. Bloomberg's Sara Foster has been reporting on the story, and she joins us now to discuss. And you talk to a 40 year old who decided to cut her contribution down to 5% from 20% so she can still capture her full employer match, but she no longer wants to put that other amount into her form in case she's redirecting it elsewhere. It's been months, I think, of writing stories about max hours. I guess it's time that we write a story about anti-vaxxers. I spoke with one of these savers who told me that she's still saving and investing for her future. She's just not putting it in the four. In one case, she's looking at the Roth IRA brokerages. She wants access to the funds earlier, and she wants more control over her investments. And if she were to put it in her for one case, she would be penalized if she took her money out early. So this is for people who want to work hard, save hard, and retire early. It's it's one of those stories where I think, you know, finance has to kind of fit around your personal goals. And so if you're someone who maybe wants to take on a little more risk or maybe retire early before those typical roles with the traditional 41K, that's when it probably makes sense to max out, uh, not to not max out. Excuse me, but I think, you know, the big question now is a lot of retirement planners are a little bit worried about it. Was I'm worried about it. The thing has changed from Peter Orszag and his landmark work at Brookings years ago is I believe we're all living longer. Is that part of this equation that some 39 year old actually understands that if there's a couple, say, the actuarial ability to get to 90 is pretty tangible? That's actually a big concern for a lot of the retirement experts I spoke with. You know, it's not just the fact that the 401 K was so successful as a wealth building tool because it was a set it and forget it method, but it was also successful for saving for retirement because people were unable to access the money. You know, even if you were attempted to spend it, you couldn't. And now that this is a concern here, if it is something that you have more access to sooner. So this 39 year old, she's redirecting her money to where? To a health savings account, to a brokerage account, a brokerage account and a Roth IRA. And actually, she maxed out the Roth IRA this year. But now she plans to not max out that next year and instead fund most of the investments to the brokerage account, because she is one of those people who wants to retire. Is there a assumption within retirement that you still that you go to a lower tax bracket? So many people have talked to say it's fiction. You know, you retire. And I was like, yeah, lower tax bracket. No oops. The tax consideration is part of it too. I think, you know, even with the advent of Roth four one case, it's not really kind of helping people think about it, especially if you were the original incentive of the four. I think it was to take the tax break, lower your taxable income, you know, pay it in retirement when hopefully you're in a lower tax bracket then. But I think, as we've seen, that tax rates are historically low, if there is a lot more room to go up and down.