Why I Didn’t Make a 401k And You Shouldn’t Either

Why I Didn’t Make a 401k And You Shouldn’t Either

 make a 401k
“Should I make a 401k?”

You might have asked yourself this question at some point. After all, a lot of employers offer it.

Simple answer: a 401k is a bad idea.

For those of you trying to live the financially independent lifestyle where you can travel the world indefinitely, like me, having your employer set aside a part of your income per paycheck into a 401k is a bad idea. Why?

Because the problem with 401k is that you get it when you’re 65.

make a 401k

Yes, the money will grow tax-free in your 401k because it’s invested in mutual funds, stocks, bonds, etc. And you might have a nice chunk of money when you retire at 65. But that’s the thing, WHEN YOU RETIRE AT 65.

You want access to your money NOW.

Let’s say you make a 401k and put money into it.

Then, as chance would have it, you’ve reached financial independence.

You’re not 65 yet but your 401k has now reached the $1 million mark designated by Millennial Revolution as the ideal marker for you to start living off the 4% rule to travel the world forever.

If you withdraw from a 401k early, you’ll have to pay taxes and penalties.

Therefore, what’s the point of making a 401k if you can’t use it to travel till you’re old?

Best to not make a 401k at all.

In regards to opening a 401k, let’s assume you’re in your 20’s when you start working and saving up money. That’s 45 years that you don’t have access to that money.

So if you’re working on reaching financial independence when you’re in your 30’s, wouldn’t you want your money when you reach it now? To use that money to travel NOW? To live NOW? Rather than when you’re 65?

make a 401k

This is why you shouldn’t make a 401k when your employer offers you one.

Instead, you should work toward saving up a million dollars in mutual funds and investments for ready access when you want to travel indefinitely.

I use Robinhood, Vanguard, and Wealthfront as my main investment places.

Thank you for reading,

-Jack

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This Post Has 4 Comments

  1. There are many ways to get money out of a 401k before 65. 72t allows periodic distributions on a schedule without penalty. It also allow penalty free withdrawals if you retire at 55. Also you could convert to a Roth if you don’t need the money for five years. The match you might get from your employer will likely offset much of that ten percent penalty. But even if you have no match somewhere after 20 years the tax saving on cap gains for most people will exceed the penalty.

    Really the only question of a 401k should be if you have to choose between it and a Roth and your lower income without a match. In that case being exempt from cap gain and a low bracket now can offset the advantages.

    1. FTF, thank you so much for your comment! You have some very good points and it made me rethink of how I worded the article. I’m going to digest your comment a little bit more and aim to get back to you 😀
      -Jack

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