saras76 said:
I don't think putting away to much in 401K and other accounts that cannot be liquidated is a good idea for us. If things don't work out here most of us will need liquid cash.
Let me provide some constructive criticism of that.
First of all, if you live in US, not putting money away in a retirement fund is a terrible idea. You can avoid it as late as the age of 35 years and still make up by slightly aggressive saving plan. If you wait till you're 40 to start saving, it's way too late and will adversely affect the quality of life in your golden years. Ideal time to start saving is the the age of 30. And No, house doesn't make a retirement fund.
The understanding of 401k among my friends is so abysmal that I shake my head in disbelief. Let's get some facts straight:
1. If you have some savings in your 401k, you can borrow from it. You pay it back with interest, the interest itself goes to your account. So you pay interest to yourself!
2. You may take out money before the age of 59.5, but then you pay 10% penalty and income tax. But let's put this in perspective in the next bullet point.
3. Most of the companies provide match. In my company the match the first 6% of my salary, dollar for dollar.
Let's use a hypothetical scenario of a person making $100,000 a year. This person saves 6% of gross which is $6,000 a years. Company matches it with another $6,000. This person saves for three years. After which the person had to return to India. To keep the math simple, we ignore salary raises and return on investments. Both of these will only positively affect the outcome.
This person has him/herself contributed $18,000. Due to company match, the sum stands at $36,000. The person withdraws it all and pays 10% fine, and still get 90% of it, i.e. $32,400. It's taxable, which can be avoided by withdrawing it a year after returning (when US salary income will be zero).
So, even if you've to withdraw it all and return, which is not very likely (unless you're very pessimistic), you still end up with an extra $14,400. Of course, if things go according to the plan, you've got extra $18,000, tax-free. You also don't pay taxes on the original $18,000 you contributed. How much is that at 30% tax bracket?
If your company provides any match, not saving in 401k is a very very costly financial mistake. Just do the math. You're leaving money on the table. Money is not a matter to be decided by the intuition of a layman, as shown in the above example. It's needs knowledge and analysis.
If the above example came as a shock to you, it's a sign that you know too little about money and need to read at least 3-6 books to be able to barely manage your finance.
Some disclaimers: you really need to save 20% of gross (including company match) for a retirement which matches your current life style. This is not complete primer on 401k, so read more if you wanna invest through a 401k plan.
My personal conviction is not to put your life on hold till GC clears. I'm currently enrolled in an evening MBA (company provides half of the total tution of 60,000). I've owned a 4-BR house for over two years now. Have been saving in 401k for three years with a nice little nest-egg to show for it and also have 529 for my son (just started so not much in it but contributing monthly).
GC will come when it'll come. Somethings you can't do till then. There's no need to have a mental block and not moving on with rest of your life.
. We are all sharing ideas and there is no need to jump down someones throat if you don't agree with a view point.