Having A 401k Plan And A Personal Account
401K Retirement Plans are great, but they are very limiting, especially if you are planning on retiring early. In many cases it can be much better to have two separate accounts, one for your 401k , way off in the future and the other for your own personal savings plan.
The advantage of a 401k plan is clear, you get tax free growth. Tax free growth can multiply without having to be slowed down by Uncle Sam. This is probably the best advantages of the plan, but it is not the only benefit.
Many employers will also contribute to your retirement giving you a big push up. So if your employer invests $.50 for every 1 dollar and you invest $1,000 your employer will invest another $500 into your 401k.
This added bonus makes it too tempting to just pass up. After all it is free money.
But it does come with some downsides. For starters there is a limit to how much someone is allowed to invest. So if you are making a huge income you may not be able to invest as much as you want to into the plan.
Even worse they have 401k withdrawal rules which do not allow you to take money out early without paying a 10% penalty. This can be a major inconvenience especially if you were saving up money the whole time for the purpose of retiring early.
Not everybody is going to be happy working until they are old and grey, some of us want to get out and enjoy life to its fullest while we are still young.
Luckily there are many other ways to retire without relying 100% on your 401k. Opening up your own private stock account for example can be very beneficial and will let you do whatever you want with your money, which may or may not be a good thing.
This has its own advantages because I believe anyone can learn stock market trading and make a much better than their 401k plans will. The reason being is that a lot of professional money managers will be over diversified.
Many Professional managers will buy 400 different securities in 50 different countries just to create diversification. But there is no way to keep track of 400 different investments and only makes it harder to make a good return.
With an individual account an individual can still seek safe investments while at the same time attempting to increase their own returns from the market.
The other advantage is that you can take money out of a private account whenever you want. So if you get to the point where you are making a few thousand dollars a month from your investments then you might decide to retire early.
It can be a good idea to have both a 401k and a private account, this way you have one to help you retire early and the other to help you get some long term safety if the other does not work out.
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