Personal Finance

I think it's excessive when people max out their 401(k)s or Roth IRAs for over 20 years — am I wrong?

Kristin Hitchcock

Published: December 14, 2024 2:16 pm

Saving for retirement is an important part of financial planning, but how you go about that differs depending on your strategy. Is it realistic (or even necessary) to max out retirement accounts for decades?

24/7 Wall St. Key Points

• There is no one-size-fits-all approach to retirement savings. For some, maxing out retirement accounts is doable and recommended. For others, it may not be.
• The key is to start saving early and contribute consistently.
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

A Redditor asked this question, sparking a thoughtful discussion about balancing financial priorities, income, and future goals. Many people simply max out their retirement accounts for years and never question it!

Let’s look at the pros and cons of maxing out your retirement accounts or whether something else makes more sense.

Why Maxing Out Retirement Accounts is Ideal

There are several reasons why maxing out your retirement accounts is recommended:

1. Tax Advantages: Contributions to a 401(k) lower taxable income, and Roth IRAs offer tax-free growth.
2. Compound Growth: The earlier you save, the more your money benefits from compounding interest over time.
3. Retirement Security: Maxing out accounts helps ensure a comfortable retirement, free from financial stress.

For those earning a higher income or with low current expenses, maxing out may feel more than doable and worthwhile.

Why It Feels Excessive for Some

1. Income Limitations: If your after-tax income leaves little for everyday expenses, saving too aggressively can strain your budget.
2. Life Costs: Housing, childcare, and other essentials may take precedence over long-term savings.
3. Work-Life Balance: Over-saving may reduce your ability to enjoy life today, such as travel, hobbies, and leisure.

These reasons get in the way of many people saving enough money for retirement. If you’re struggling to pay your bills, maxing out your 401(k) may be the furthest thing from your mind.

What’s the Right Balance?

For most, the goal is to save enough for retirement without compromising too much on their current quality of life. You still have to pay your bills, after all. Here are some tips to help you find the balance that works for you.

• Save what you can afford: Saving something is better than saving nothing. It’s okay not to max out your contributions. Even saving a smaller percentage consistently adds up a lot over time!
• Increase savings gradually: As your income grows, aim to boost your contributions. Consider yearly increases or allocating bonuses to retirement.
• Prioritize emergency savings: We do recommend having a sizable emergency fund before deciding to save for retirement.
• Leverage employer match: Contribute enough to your 401(k) to secure the company match. If you have the money to do this, absolutely do it! It’s free money.