How the hell are we supposed to retire?

[Cassinonorth]

How is that "stacked"? Both employees in your example get the same 100% match of their 5% of salary. What about the higher earner that makes 800K? Now their match is only 50% of their 5%.

The earner that makes $800k has access to things like the mega backdoor Roth IRA and all sorts of loopholes

Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class Into a $5 Billion Tax-Free Piggy Bank

Roth IRAs were intended to help average working Americans save, but IRS records show Thiel and other ultrawealthy investors have used them to amass vast untaxed fortunes.

www.propublica.org

 

[Patrick]

How is that "stacked"? Both employees in your example get the same 100% match of their 5% of salary. What about the higher earner that makes 800K? Now their match is only 50% of their 5%.

you know how limits work - they get 100% of their $20,000 contribution.

and at that level, they also have deferred compensation as an option, creating an income stream after retirement outside the normal channels.
in other words, they could accept $400k income, get their 100% match, and defer the rest until they retire, where they will also get the
100% on their contribution then. plenty more to consider - restricted stock, vs RSU, NQ options vs qualified, ISOs, ltip, esop. many based on level and salary.
the more you make, the more you make.

now consider the contract level where the bonus is on company performance. I'm sorry, no raises this year. Company makes their number, person making decision gets a big payout. Hopefully stock goes up. At-will people not rewarded.

even better is putting company penny stocks in a roth and having them explode! But that is usually the reason the company exists in the first place, so the unicorn should get compensated.

 

[rick81721]

you know how limits work - they get 100% of their $20,000 contribution.

and at that level, they also have deferred compensation as an option, creating an income stream after retirement outside the normal channels.
in other words, they could accept $400k income, get their 100% match, and defer the rest until they retire, where they will also get the
100% on their contribution then. plenty more to consider - restricted stock, vs RSU, NQ options vs qualified, ISOs, ltip, esop. many based on level and salary.
the more you make, the more you make.

now consider the contract level where the bonus is on company performance. I'm sorry, no raises this year. Company makes their number, person making decision gets a big payout. Hopefully stock goes up. At-will people not rewarded.

even better is putting company penny stocks in a roth and having them explode! But that is usually the reason the company exists in the first place, so the unicorn should get compensated.

That's the way compensation works. Raises based on merit are a percentage of your salary. if you make $50,000 and get a 10% raise, you get $5,000 more a year. If you make $200,000, have the same performance grade and get a 10% raise, you get $20,000 more a year. Similar principle to bonuses except at higher levels, usually the percentage for meeting the same performance targets goes up.

It's not stacked, it's called math.

 

[Patrick]

That's the way compensation works. Raises based on merit are a percentage of your salary. if you make $50,000 and get a 10% raise, you get $5,000 more a year. If you make $200,000, have the same performance grade and get a 10% raise, you get $20,000 more a year. Similar principle to bonuses except at higher levels, usually the percentage for meeting the same performance targets goes up.

It's not stacked, it's called math.

when did we get to merit based raises/bonuses?

Contract based company performance bonuses can create horrible short term decisions.
Executive level stuff, outside the "here is the pool of $$/RSU/Options for raises and bonuses for the peasants"

 

[rick81721]

when did we get to merit based raises/bonuses?

Same concept as 401k matching funds, obviously.

No idea what you yakking about "contract level".

 

[Patrick]

Same concept as 401k matching funds, obviously.

No idea what you yakking about "contract level".

contract employees are different from at-will employees.
you were an at-will employee. they could fire, or you could leave at any time, for any reason (or no reason)

Usually EVP and up are contract - their compensation/raise is not based on the whim of their boss,
and the term of their employment is defined (can be renewed/extended)
Usually board approved also -

---

merit based bonuses are not the same as matching funds in a retirement plan -
unless the claim is the matching absolute amount increases up to the contribution limit

 

[Blair]

contract employees are different from at-will employees.
you were an at-will employee. they could fire, or you could leave at any time, for any reason (or no reason)

Usually EVP and up are contract - their compensation/raise is not based on the whim of their boss,
and the term of their employment is defined (can be renewed/extended)
Usually board approved also -

---

merit based bonuses are not the same as matching funds in a retirement plan -
unless the claim is the matching absolute amount increases up to the contribution limit

If you’re making 400+ or even 200+ there’s a pretty good chance you have access to an executive compensation plan to defer significant amounts of salary and bonuses. Bonuses you could defer up to 100%. All those 40 and 50% tax rates…nobody should have to pay that if you plan it right. All politics to get re-elected and all those Congress people are loaded, you think they would pass something detrimental to themselves?

 

[Patrick]

you think they would pass something detrimental to themselves?

Like having the government default on its debt? What a joke that is.

 

[rick81721]

contract employees are different from at-will employees.
you were an at-will employee. they could fire, or you could leave at any time, for any reason (or no reason)

Extremely small population of a corporate workforce and not relevant to this discussion.

In any event, welcome to the real world. This is how capitalism works. What's your solution to this "problem" - federal laws that dictate how corporations can compensate their employees? Or just go right to socialism/communism??

 

[rick81721]

If you’re making 400+ or even 200+ there’s a pretty good chance you have access to an executive compensation plan to defer significant amounts of salary and bonuses. Bonuses you could defer up to 100%. All those 40 and 50% tax rates…nobody should have to pay that if you plan it right. All politics to get re-elected and all those Congress people are loaded, you think they would pass something detrimental to themselves?

How does one defer a cash bonus? Even if a bonus is in stock, you have to pay taxes the year it is awarded. Options defer income until executed. In our corporation, even the highest level employees got bonuses in cash, plus stock grants and options.

 

[Mahnken]

Extremely small population of a corporate workforce and not relevant to this discussion.

In any event, welcome to the real world. This is how capitalism works. What's your solution to this "problem" - federal laws that dictate how corporations can compensate their employees? Or just go right to socialism/communism??

Socialism and communism are the same thing to you?

 

[Patrick]

Extremely small population of a corporate workforce and not relevant to this discussion.

In any event, welcome to the real world. This is how capitalism works. What's your solution to this "problem" - federal laws that dictate how corporations can compensate their employees? Or just go right to socialism/communism??

the discussion was retirement and 401k -
which i noted is stacked for the high earner.
I pointed out the higher you go, the more uneven it becomes - and irony of capitalism.
we've also discussed that using the traditional 401k while in the low income bracket may be a bad idea
a roth 401k would be better - depending on the match (??)


Since you asked:
the solution is match 100% of the first $5000 (or $x,xxx,) rather than 100% of the first 5% of salary.
the person making $50k is struggling to save $5k, the person making $200k is not struggling to save $5k, and probably not $20k either.

 

[rick81721]

Since you asked:
the solution is match 100% of the first $5000 (or $x,xxx,) rather than 100% of the first 5% of salary.
the person making $50k is struggling to save $5k, the person making $200k is not struggling to save $5k, and probably not $20k either.

What's that a solution to? Other than trying to equalize corporate matching funds into a 401K? Note some corporations match much less than your example. That would save companies mucho Dinero - and they can splurge more on the higher ups!

 

[rick81721]

Socialism and communism are the same thing to you?

In the context of trying to equalize compensation, of course.

 

[Blair]

How does one defer a cash bonus? Even if a bonus is in stock, you have to pay taxes the year it is awarded. Options defer income until executed. In our corporation, even the highest level employees got bonuses in cash, plus stock grants and options.

It’s kind of like a 401k, established as a company benefit where you can defer what you want except there is no limit on what you can defer and there are no early withdrawal penalties, I don’t know every detail on how it works or is available, just know it exists and is legal, avoiding the 40% tax rate. Not sure about the stock options but wouldn’t be surprised there was a way to do that.

 

[clarkenstein]

It’s kind of like a 401k, established as a company benefit where you can defer what you want except there is no limit on what you can defer and there are no early withdrawal penalties, I don’t know every detail on how it works or is available, just know it exists and is legal, avoiding the 40% tax rate. Not sure about the stock options but wouldn’t be surprised there was a way to do that.

LTIPs are deferred, not avoiding taxes entirely. It allows execs the ability to take income in the year when it’s best for them with many limitations, for example, if there is a loss they are taking they can take income that year. It’s not tax free…

The income level of $200k is not where this stuff exists. It’s higher. Salary is usually the lowest part of the equation. It’s usually equity that does it in.

Back door ROTHs are available to everyone. Unfortunately most people don’t look into it. Advisors usually don’t bother offering it unless there is over $1M in assets in total purely because it’s an administrative burden, and they don’t make money on it. It’s mostly a client service thing, but it’s available to anyone at any investment level.

 

[thegock]

All of the above being said, the ratio of the average CEO's total comp to the average same company employee is higher than it was 50 years ago. This skewdness is probably good capitalism, I suppose, but not so much in the context of economic analysis of the effects of inequality and discrimination. Unless ur @rick81721 😘

 

[rick81721]

All of the above being said, the ratio of the average CEO's total comp to the average same company employee is higher than it was 50 years ago. This skewdness is probably good capitalism, I suppose, but not so much in the context of economic analysis of the effects of inequality and discrimination. Unless ur @rick81721 😘

People have been squawking about this for decades. So what do you do about it??

 

[rick81721]

401Ks are great - even tho they are stacked to benefit the high earners of a company.
say the company gives a bonus of 100% of the first 5% of salary. we all agree this is good.
the 401k limit is about $20,000 - if someone makes $400,000/yr, they get 100% match of their contribution 5%,
while the person make $50,000, gets $2,500. just the way it is stacked.

PS your analysis is flawed as you failed to account for the IRS compensation max of $290K. So the person making $400K in your example gets $14K in match, not $20K.

Anywho, here's a list of some of the best plans:

https://meetbeagle.com/resources/post/401-k-match

 

[Santapez]

PS your analysis is flawed as you failed to account for the IRS compensation max of $290K. So the person making $400K in your example gets $14K in match, not $20K.

Anywho, here's a list of some of the best plans:

https://meetbeagle.com/resources/post/401-k-match

All large companies. Strengthens my point about the 401K not benefiting all workers equally.