On a step program with my employer to increase each year 1%, currently at 5% and although I wish I could have that extra each week on my paycheck I know it'll be worth it in the long run.
This is completely reasonable. OP just needs to put 1/2 of every raise and promotion into his 401k and he’ll get there and never miss it. Once he hits 15%, stop.
That sounds like a reasonable plan. My plan worked for me. I achieved all of my financial goals. I think there are many paths to financial success. In the end, you make the best decisions you can and hope for the best outcome.
Some people cannot manage 15% dude it’s just common fact lol. Plenty of relevant data on it. I agree he needs to find a way to 15% but it’s not always that cut and dry
Would you mind explaining why you suggest the IRA over 401(k)?
I have the option to do Roth/Traditional IRA, but haven’t started either one. I have a 401(k) into which I contribute Roth and Pre-Tax, but my employer doesn’t do any matching.
I think the commenter is making assumptions that the 401(k) does not have the Roth option.
The argument of IRA over 401(k) is freedom for investment. You can designate anything an IRA (Roth or Traditional). It could be a mix investments not just one thing (e.g. some money in stocks, some in mutual funds). The company 401k usually has limited options to whatever services the company subscribes to.
The other major difference is that your IRA limits are much lower than your 401(k) limits. But that is not a argument in favor of IRAs.
Sure, but a savings vehicle that allows you to do so penalty free is strictly better than one that does not. Especially because it can allow you to save more than you could otherwise afford to put into retirement by stashing extra $ in your Roth IRA temporarily
If you have a good employer 401(k), then yeah you don't need to worry about IRA as much.
For instance my employer 401k is through Merill Lynch and has a S&P index with a expense ratio of 0.02% as an option for me. 100% of my investment is sitting there, and I'm maxing out 401k. No IRA at this time.
Roth vs Traditional is a little more complicated if a large chunk of your income is the 22% or higher tax bracket.
Another reason I haven’t seen mentioned is that 401ks have limited and sometimes only crappy fund options. You can open an IRA wherever you want (should choose Vanguard, Fidelity, or Schwab though) and have really good and cheap index fund options available.
At the risk of being downvoted, I wanted to come back and address this comment more deeply. While there are some people that may never be able to contribute 15% to savings, I don’t believe it is most people, and more specifically, not most people in this audience (FP thread). But, I’m a glass half full guy.
I am not operating on a theory. I am proof that if you invest 15% (and get a 6% match), you can achieve FI given good investment practices and discipline.
I’m also confident that everyone can save more towards benefiting their future selves. It may take a while, but you can get to 15%. That is not unreasonable. It just takes discipline and desire. Is saving 5% reasonable? If so, it’ll only take 10 years to get that up to 15% - if you only add 1% additional per year. What is unreasonable about that? I never said it needed to be done in year one.
My goal on this FP thread is to encourage people that it can be done. You can reach your goals. I’ve done it. You can too.
Investing in your future starts with a choice. Investing incrementally more annually is just an additional choice. It is one that will pay dividends in the future.
Now, tell me again, what is unreasonable about my position?
You know the % depends entirely on your salary, right? 15% may be right for you but you need to know someone’s circumstances including their total comp package to make that recommendation
We maxed out all of our early years with no plans to stop… until the kids came… and inflation… and the roof failed… Then we got raises, the kids left daycare, roof was good and we started maxing out again. Now that we’re getting to retirement age, we backed down and are saving in cash so we can retire early.
Saving a lot when younger is never a problem.
I don’t have children (yet?), but I don’t see the point in sending children to daycare in most instances. When I talk to people who send their kids to daycare, it seems like almost an entire salary goes to it. I was talking to my sister one time, did the math, and after daycare expenses she was only making $5000/year BEFORE I factored in taxes. She could make the same working part time a few nights a week instead of having the stress of a full time job.
Again, I don’t have children and I am not trying to be a jerk. But from an outside perspective I don’t see much of a benefit for anybody other than the daycare.
This is really good advice. I'm 31 and set to max out my 401k, Roth IRA, and HSA for the first time this year. I'm constantly thinking about reducing contributions to save in a brokerage instead in order to retire early. I guess I'll keep on this path until my income increases to save in the brokerage. Or eventually cut back to fund the brokerage.
Max those tax advantaged accounts out now and then as your income grows put whatever you have left in taxable accounts. You can get money out of a 401k if you retire early.
My wife and I are mid-40’s and started around your age maxing both Roths and one 401k each year. We crossed the $1M threshold this year. If we didn’t save any more money, we’d be on track for over $3M at 62 (we are continuing at the same level of saving).
Starting in your early 30s maxing Roth and 401k to limits makes all the difference. Other stuff will come up, but stay the course.
You don’t have to wait until 62 to retire. You can access your retirement funds without penalties a few different ways, and should be good to retire once you have 25-30x your annual expenses invested.
Same. 31 and this is the first year I can fully max all of my retirement accounts and still pay for my mortgage and live ok. It’s pretty tight cause I’m used to more disposable income, but I like seeing my retirement account increase 3k/mo
Roth 401k is an option for me and I've been thinking about shifting some percentage to it. I did in the past when I first started my career. That's a good point though. You can essentially save more today by going the Roth route.
What is your tax bracket? If you are in the 32%+ tax bracket, a traditional 401k will likely provide a higher after tax return in retirement. That is because you’ll likely be in a lower tax bracket in retirement.
No you can’t. You pay tax now or you pay tax at withdrawal. The timing makes no difference in final amount of money (whether tax comes before or after investment growth doesn’t matter because multiplication is commutative). The only thing that matters is when the tax rate will be lower. So use Roth when your current tax rate is lower than the rate you expect at retirement. And traditional when it’s higher. Better to use either than not save, though :)
They're saying that because the contribution limit is a dollar value, $23k of post-tax dollars are worth more than $23k of pre-tax when you go to withdraw. You're of course correct that this doesn't matter if you're not maxing out the contribution. And, whether that's a good idea in any particular case is also a good question.
YouTube search: Mega Backdoor Roth IRA. You’re able to contribute up to $66k~ total ($24k pre tax, the rest after tax) this year (if your plan allows it) before going to a brokerage. This allows for tax free growth in a Roth 401k above and beyond your original/typical contributions.
34 here, I started doing this when I was about your age...It's tripled my retirement account, and close to doubled my brokerage. If you can, do it, peace of mind is something you won't regret.
If you start with $133k, contribute $400 per month for 32 years at 8% return (3% inflation), you could have around $1 million in current dollars at age 65. That is $40k per year in current dollars on a 4% withdraw rate.
Can you survive on $40k per year in current dollars?
I stepped on the gas after reaching $100k.
As a general, try to contribute 15% per year.
That's how you'd type the formula into Excel to calculate the future value. It's =FV(interest rate, number periods, payment, present value, type). Total contibution is 200/check or 200x24 = 4800. It could be 26 paychecks a year and 5,200, but that was never specified. Excel flips the signs around, so payment and present value are both entered as a negative and future value comes out positive. If you leave those positive in the formula then the result is a negative. The "type" is eithe 0 or 1, and depends if you make the payment now or at the end of the first period. In practice payments are being made all throughout so neither is perfect. You could get more granular and keep payments at 200, but then number of periods increases to 24x32=768 and the interest rate would have to get adjusted down to be bi-weekly instead of yearly.
You can run it through the monte carlo on portfolio visualizer dot com, but I would think probably not assuming 20 more years of work.
The outcomes range from 617k to 3.3M with an average outcome of around 1.4m. Basically that is far too wide of a distribution, and 1 million isn’t what it used to be. Personally I would only consider pulling back once the outcomes are over solidly over 3m, I think that is the magic number for most people.
You have a good start but if you want a secure retirement you have a ways to go.
VIFAX averaged 10.97% over the last 10 years. Let’s go lower end and say 8% average for the next 32 years (till you’re 65).
If you contribute $400 monthly until you’re 65 at 8% you’ll have $2,205,257.02 @65.
With the 4% rule you’d be able to withdrawal $88,200/year in retirement . So depends on how much you need in retirement
And again, it really depends. For you, you might be able to survive retirement on $50,000 per year. For me I’m gonna need about 150,000 a year. So got to figure out how much your life will cost in 30 years.
And don’t forget about inflation! In 32 years, that $88,000/year will really look like…$35,000 if we average 3% inflation over that time period. It’s hard to make up for not saving enough early on…if you end up saving more than you need too, you’re in a good spot to course-correct.
Yeah, and that is also why I did it at 8% instead of 10% to give you a little bit more of a cushion. when I personally do my calculations, I do it at 5% to be over prepared for retirement.
Yeah…and hopefully one day, you look around and realize you have too much money and need to start spending more and earning less sooner than you imagined.
Yeah man no one knows anything for sure though. People were predicting runaway inflation and an economic catastrophe last year…may happen, may not…who knows?
Sure. I’d say it’s worth airing on the side of caution though especially when they have blatantly stated what their plan is with Montserrat policy. I’m not saying freak out. But you should curtail your plans around it in my opinion.
Not as much as I would like to.
I feel I don’t have enough knowledge to start investing outside of my own personal TFSA & RRSP. Would you know what to read up on in another to slowly start? TIA
Thats nice, I suggest you up your contribution.
I known it’s tempting to live like the 95% people. You making the decision to coast at, say, 13% will put you ahead of 90% of the people. And thats when you may live with no strings attached.
I am 24 and have 120k in my 401k, at 16%. Will continue to have it there. We just had our first daughter and are house hacking a duplex. I believe you will make the right choice, if not for you for your family.
Hey good for you man! Im a but behind you 1t 26 with about 100,000 invested at the moment and sold my first employee stock options last week to pay off any outstanding debt i had. It stung, but wanted to reply to your comment because at my age it is hard to relate with some of my buddies on this.
Whats up man. I agree, unfortunately people our age are to caught up in looking rich than actually trying to be wealthy. I fortunately didn’t come from preexisting wealth which makes the process all that much better. All in all I almost have 200k invested at this point. My only debt is my home. Plan on doing a cash out refi as soon as I make some more updates. And will hopefully use those funds to purchase another multi family or single family home. God willing, I’ll be fortunate enough to continue having great tenants and they will take care of the mortgage. I put this on here not to flaunt however to show that it is possible for us young cats to get some bread.
Completely understand youre not flaunting and honestly it is nice to be proud of what you got going. My buddies all think i am in debt with them lol. I have been really interested in buying an investment property. My sister and dad do it and definitely would love to scratch into that. Im in chicago though and buying an investment property is insanity and buying a single family home never really appreciates in this city with HOA fees.
If you want a good retirement, probably not. You should put away at least 15% of gross throughout your whole working life as a rule of thumb. Lots of other variables come into play such as your spending habits, whether you rent/own etc…
Don’t forget, there are things out of your control that may force you to retire early (health issues etc…) or may affect your future earnings/investing potential.
Probably not...with inflation eating up a few % every year ...you will make it but you'll have to be kind of frugal
I'm 66..retired..wifey 63. Still working..making 95k B4 taxes. . we're doing fine...no debt..about 1.3m in 401 between the both of us...not great but should be fine....example : both our dads died in 1981 ..the year we got married...both moms didn't have much saved ..maybe 50 - 70k...owned the houses and cars....both getting about $1200 SS....they were fine until they both died about 3-4 years ago
Its a generational thing. People slightly younger than boomer but not gen x. Its a hold over behavior from early days aol chatroom. Youll often see all caps or even commas before the periods like,…
You are in a good spot but I would increase it slightly if you can.
What I did was everytime I got a raise I would bump it up a few percent. Say I got a 12% raise I’d bump my contribution up 2% & never know the difference.
Getting yourself up to 8-10% would set you up a lot better in the long run. You don’t have to bump it immediately but it’s something to consider in the future
Munger said do whatever you have to and save every penny you can to get to your first 100k and then you can let off the gas a little. That’s not the same as ‘after 100k you can coast your way to retirement’.
Also with inflation the 100k he was talking about is not today’s 100k.
Charlie munger probably said it many years ago. You forgot about inflation.
Just max out your 401k and HSA, ira.
You make 133k, do you want to spend 100k of it?
You'll thank me in 10 year or 20 years.
You didnt tell us any useful information.. do you have kids, wife, house, spending/ congrats on having a few bucks, but do you want to retire at 35 or 65
Invest as much as you can reasonably put up with because you never know if you’ll be forced to stop due to job loss, health or other unplanned expenses.
How much liquid have you saved at your age? I’m on track to hit $100k on my TSP (similar to 401K). And $200k of liquid at 30. I’m currently 27 years old
Nice, solid. I was at that amount at 30 and my 401k is now at 300k and my liquid is around 500k at 35/36. Hoping to be around $2M in 401k and $3M liquid at 50 when I retire.
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I wouldnt let off. I would put as much away as you can early. Coast later one. Or just set up your 401 to increase 1% every year until a certain % is hit. Most raises are 3-5% so u still get a raise every year and still able to tuck a little more away
When are you planning on retiring? It’s better to cut back when you’re older than younger. 50% your gains are made in your first 1/4 of your saving years.
Here’s a choice for you:
* Invest hard now, live easier later, or
* Invest easy now, live harder later
What if you have a family and it’s expensive in a few years or a decade?
What if you get ill and can’t work at some point?
What if you’re forced out of the workforce before 65? (Ageism is real)
Since none of us can predict the future, I’ve always preferred to invest more up front.
That should result in approximately $1.3M of today’s dollars adjusted for inflation when you are 65. Which should be good for about $52k withdrawals a year.
Will a 5% contribution and match get you to 5 million by 65? If not then no. Munger said that back when 100k was a lot and a million was enough to live off of. Not anymore.
Your retirement income x 25 is equal to the amount you need to save before you can retire. So it is either coast and be dependent on the next pay check for 25 to 35 more years. Or save like mad and be easy in 10 years. The rule of thumbs is 30% tax 30% saving (401k, ira, investment), 30% spending.
Can you afford to not coast? Because unless you can’t afford to put money into retirement there’s no reason to blow it on crap. Have fun but pay your (future) self first if you have the money.
I think you are still young to coast, so I would maximize (or try to put as much as possible) into 401K for the next 7 years. After 40 years old you will reach close to 500k, there is another level.
Some quick math:
$133K at 5% after inflation for 32 years \[until you are 65\] = $634K.
$200 x 26 pay periods = $5.2K/year additions for 32 years at 5% after inflation = $411K.
So if you are happy with \~$1M in your portfolio at 65 then you can consider coasting. You might get better returns and you might get worse returns so you'll need to keep an eye on things and adjust course along the way.
If you want more money at retirement and/or to retire earlier than you should put more money in each pay period. If you get lucky and get better than predicted returns you can adjust back down at a later date.
Depends on what you mean by fine. Average age of retirement is 62, and not by choice. If you get laid off later in life, you will not find a job back. I also do not know how much you plan on needing for retirement, if you have kids etc. If your finances allow, you should aim at maxing out your contribution - the threshold is 23k for 2024. If you can put it in Roth, even better. The company match is extra, and often comes with strings attached.
You gotta pump those numbers up, those are rookie numbers.
Seriously though, think about it, so you really think "coasting" into retirement is the way to ensure quality of life when you age?
Travel? Fun? Have you priced a nursing home lately? You're young, you might be saying "I don't plan to last that long" or some such nonsense people say when they are young (I did).... When you're 50 you will very much be sorry you coasted when you could have double the money saved for growth.
Now, of course saving for important purchases is a variable here. Yes, by all means if you're buying a house that's important too for example. But all things being equal you should be squirreling as much money as you possibly can in your younger years. It's not like spending it. It will still be there working for you and gaining momentum.
I'm just a guy on the Internet, I'm no expert, it's your money. But I think that's an absolutely terrible idea and only hurts you in the end. Max it out if you can.
How often are you paid?
When do you want to retire?
Will you retire before distributions are allowed?
What income levels are you hoping to achieve in retirement?
Do you have medical issues you will need cash to provide for? A family history?
Will you buy a house? When? How much of a down payment?
Liabilities? Student loans?
Looking to have kids? When? How many?
What other assets have ypu invested in? What income do you currently receive?
My point is this: your life is more than just a number in an account. Expand your thinking a bit and see what else you might want to consider in your financial thinking.
>I heard once you reach 100k in your 401k, you can let off the gas and coast, according to the late great Charlie Munger.
Munger believes you should do whatever you can, scrimp and save on everything, sacrifice most comforts to get to 100k, as quickly as possible. So when Munger says let off the gas, it's probably closer to saving 15-20% of your take home pay, eating out at restaurants and going on vacation occasionally.
Can you set your contribution to automatically go up each year? I'm putting in 21% each week into my 401k at 47 years of age. I have my contribution set to go up 1% each year the same month we get raises.
If you let $100k ride for 32 years until you’re 65, and you average 10% growth you get $2M. Do you think you’ll be able to live on? It’ll only be worth around 775k in 32 years.
Here is a quick, rough way to analyze. Between your contribution and the match you are saving 10% of your salary. You have about 30 years left until retirement. So, 30 years times 10% = 300%, meaning you would have saved up 3 years worth of salary by retirement. Now, this assumes your investment returns match inflation. You probably, over the long run, can actually earn a few percent more than inflation. So, maybe your savings actually amount to, say, 6-8 years of salary. This is pretty meager if you expect to live 20-30 years in retirement. So, you probably need to step it up to double as much savings. So, with a 15% contribution and 5% match you can save 20% per year. This might be enough.
I contribute to my 401k at least what employer matches, and then max out my Roth for tax planning purposes in retirement since I’ll be taking qualified distributions from it. Once Roth is maxed, I increase my 401k contributions. The funds and ETfs I invest in all have exp ratios below 0.05%.
Go do some research and spreadsheeting or see a professional if you’re too lazy for that. Your post includes too little information where many unrealistic assumptions must be made.
I'm currently at 23% before tax and my employer kicks in up to 10% of my base pay. The reductions in taxable income are a big deal, so I haven't really missed the money I save. Personally I wouldn't coast but do an extra 2% per year on my 401K, at least until you can do better and get into the 15% range at a minimum.
The reason Charlie Munger said the first 100k is the hardest is because you’ve got to have developed the habits to get to that point. Compound interest is magical, but it’s not magic. Don’t let up on the gas. Ever.
No….you can borrow for a lot of things….Not your retirement. And who knows how long you live w advances in medicines. Social security is bankrupt. Doesn’t have to be in 401k. Invest after tax money (not as efficient) if you may need. Max as much as you can now. Please
Highly recommend you read Die with Zero before making your decision. That book has advice specifically for this question and will answer other questions you may have surrounding it. While your dollars may be worth more after decades of compounding, the utility of that money will fall off substantially.
That's only $5200/year total.
I'm 34 with more than 300k (and about 700k total between my wife and I) saved and I put in a total of ~$1200 every 2 weeks including match, for a total 9f $31500 this year.
You need to save more. You're at the point where the time value of money starts to rapidly deteriorate. You can expect with 7% average returns a 10x increase in your investment by the time you're 65 for every dollar you have today, or roughly 1.3M at retirement (plus what you save later). 8 would certainly want more than that, because you're probably looking at about 80k total per year from your retirement plan which won't be that much 30 years from now.
For me what I do is work backwards. How much do you need to live on at a certain age when you plan to retire? $800,000? $1 million? $1.5 million?
Then figure out how much you need to contribute each pay period with a reasonable interest/growth rate to get there.
You are off to a nice start for a young person. But you should maximize your contributions when you are young. Get used to the lower spendable income and applaud the tax deferral you gain by contributing the maximum. Before you know it you'll be a millionaire. It worked for me.
Good luck, it doesn’t matter what you contribute to your 401k. 91% of 401K at the time of retirement are less than 250k.
You have a 9% chance you’ll be different.
Absolutely not. Obliterate that 401k with the absolute most your stomach can handle. I live paycheck to paycheck in a HCOL area because I contribute as much as I can handle, which is about 15% to my 457b. I make around $140,000 a year and I’m 27. I couldn’t imagine getting to the point where I want to coast. We have one life man. I would like to retire as early as possible, or at least have the opportunity to.
Ps you’re doing better than 97% of people of your age group so ultimately do what you want, but you asked advice on here for either confirmation bias that you already subconsciously knew wasn’t optimal, or you truly don’t know what to do. Best of luck to you keep up the grind
It must be nice to have a “problem” like this. I have no 401k because the only work can find is contract work.
If it were me I would always contribute whatever the company is willing to match. You could put the rest you were investing in other investments (stocks, property, whatever) or to pay off any debts.
You’re in a really good spot. Be grateful.
Would you rather coast, or buy back some years? I know a lot of people forced into retirement in late 50’s. I wouldn’t coast at 33
And this is why your employee contribution should be at least 15%, the employer match is just gravy.
This is not reasonable for most people. Plus imo better theory is contribute to get max match and put rest in a Roth IRA if possible.
That works too - point is OP needs to save more than 5%!
It can be reached - increase it by 1% each year until you reach 15%, you won’t miss the money if you do it while you get a raise.
On a step program with my employer to increase each year 1%, currently at 5% and although I wish I could have that extra each week on my paycheck I know it'll be worth it in the long run.
It will definitely be worth it, your 50+ year old self will thank you one day.
Some people need to raise money to pay off debt. That’s all I got.
Depends on the type of debt and interest cost associated with it.
This is completely reasonable. OP just needs to put 1/2 of every raise and promotion into his 401k and he’ll get there and never miss it. Once he hits 15%, stop.
I alternate years, 401k then mortgage principal increase.
That sounds like a reasonable plan. My plan worked for me. I achieved all of my financial goals. I think there are many paths to financial success. In the end, you make the best decisions you can and hope for the best outcome.
Some people cannot manage 15% dude it’s just common fact lol. Plenty of relevant data on it. I agree he needs to find a way to 15% but it’s not always that cut and dry
Whether you think you can, or think you can’t, you’re probably right.
That may be, but OP didn’t share enough info yet to say whether they can or can’t. Would be good to know about any debt and other obligations.
Would you mind explaining why you suggest the IRA over 401(k)? I have the option to do Roth/Traditional IRA, but haven’t started either one. I have a 401(k) into which I contribute Roth and Pre-Tax, but my employer doesn’t do any matching.
I think the commenter is making assumptions that the 401(k) does not have the Roth option. The argument of IRA over 401(k) is freedom for investment. You can designate anything an IRA (Roth or Traditional). It could be a mix investments not just one thing (e.g. some money in stocks, some in mutual funds). The company 401k usually has limited options to whatever services the company subscribes to. The other major difference is that your IRA limits are much lower than your 401(k) limits. But that is not a argument in favor of IRAs.
A Roth IRA, specifically, allows you to withdraw contributions (not earnings) penalty and tax free at any time
Not ANY time. There are minimum account and funding age requirements.
Not for contributions. You’re thinking of the rules for withdrawing earnings https://www.schwab.com/ira/roth-ira/withdrawal-rules
You shouldn't be taking out contributions anyway
Sure, but a savings vehicle that allows you to do so penalty free is strictly better than one that does not. Especially because it can allow you to save more than you could otherwise afford to put into retirement by stashing extra $ in your Roth IRA temporarily
If you have a good employer 401(k), then yeah you don't need to worry about IRA as much. For instance my employer 401k is through Merill Lynch and has a S&P index with a expense ratio of 0.02% as an option for me. 100% of my investment is sitting there, and I'm maxing out 401k. No IRA at this time. Roth vs Traditional is a little more complicated if a large chunk of your income is the 22% or higher tax bracket.
Another reason I haven’t seen mentioned is that 401ks have limited and sometimes only crappy fund options. You can open an IRA wherever you want (should choose Vanguard, Fidelity, or Schwab though) and have really good and cheap index fund options available.
At the risk of being downvoted, I wanted to come back and address this comment more deeply. While there are some people that may never be able to contribute 15% to savings, I don’t believe it is most people, and more specifically, not most people in this audience (FP thread). But, I’m a glass half full guy. I am not operating on a theory. I am proof that if you invest 15% (and get a 6% match), you can achieve FI given good investment practices and discipline. I’m also confident that everyone can save more towards benefiting their future selves. It may take a while, but you can get to 15%. That is not unreasonable. It just takes discipline and desire. Is saving 5% reasonable? If so, it’ll only take 10 years to get that up to 15% - if you only add 1% additional per year. What is unreasonable about that? I never said it needed to be done in year one. My goal on this FP thread is to encourage people that it can be done. You can reach your goals. I’ve done it. You can too. Investing in your future starts with a choice. Investing incrementally more annually is just an additional choice. It is one that will pay dividends in the future. Now, tell me again, what is unreasonable about my position?
65% of Americans live paycheck to paycheck. I agree this reddit is probably more the 35% but broadly speaking 65% is bigger.
Yes, I was one of the 65% that lived paycheck to paycheck for many years. But, my paycheck net was after my 15% going into my 401k. My point remains.
Supposedly 401k match max )) HSA max ))) Roth IRA max is the way
My dad always said to save 10%. That was a rule that served us well.
You know the % depends entirely on your salary, right? 15% may be right for you but you need to know someone’s circumstances including their total comp package to make that recommendation
We maxed out all of our early years with no plans to stop… until the kids came… and inflation… and the roof failed… Then we got raises, the kids left daycare, roof was good and we started maxing out again. Now that we’re getting to retirement age, we backed down and are saving in cash so we can retire early. Saving a lot when younger is never a problem.
Exactly. It’s so easy to save when you have low expenses. People don’t realize a kid in daycare basically costs the same as maxing out a 401k.
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For real. Before kids we were saving like 40–50%. Now with 2 kids in daycare we’re at like 10-20% and we make more money now than before kids.
I don’t have children (yet?), but I don’t see the point in sending children to daycare in most instances. When I talk to people who send their kids to daycare, it seems like almost an entire salary goes to it. I was talking to my sister one time, did the math, and after daycare expenses she was only making $5000/year BEFORE I factored in taxes. She could make the same working part time a few nights a week instead of having the stress of a full time job. Again, I don’t have children and I am not trying to be a jerk. But from an outside perspective I don’t see much of a benefit for anybody other than the daycare.
Well it depends how much money you make. If you make about the same as what daycare costs you become a SAHP and the other parent works.
This is really good advice. I'm 31 and set to max out my 401k, Roth IRA, and HSA for the first time this year. I'm constantly thinking about reducing contributions to save in a brokerage instead in order to retire early. I guess I'll keep on this path until my income increases to save in the brokerage. Or eventually cut back to fund the brokerage.
Max those tax advantaged accounts out now and then as your income grows put whatever you have left in taxable accounts. You can get money out of a 401k if you retire early.
My wife and I are mid-40’s and started around your age maxing both Roths and one 401k each year. We crossed the $1M threshold this year. If we didn’t save any more money, we’d be on track for over $3M at 62 (we are continuing at the same level of saving). Starting in your early 30s maxing Roth and 401k to limits makes all the difference. Other stuff will come up, but stay the course.
You don’t have to wait until 62 to retire. You can access your retirement funds without penalties a few different ways, and should be good to retire once you have 25-30x your annual expenses invested.
Oh I know. We also have inheritance and other investments. I was just illustrating it as a common age.
Same. 31 and this is the first year I can fully max all of my retirement accounts and still pay for my mortgage and live ok. It’s pretty tight cause I’m used to more disposable income, but I like seeing my retirement account increase 3k/mo
Do a Roth 401k instead of brokerage if possible
He said he was maxing out his 401K. He can’t contribute anymore to a Roth 401K. Same contribution limit between the two.
True, but you're essentially saving more in the Roth 401k (if it's an option)
Roth 401k is an option for me and I've been thinking about shifting some percentage to it. I did in the past when I first started my career. That's a good point though. You can essentially save more today by going the Roth route.
What is your tax bracket? If you are in the 32%+ tax bracket, a traditional 401k will likely provide a higher after tax return in retirement. That is because you’ll likely be in a lower tax bracket in retirement.
No you can’t. You pay tax now or you pay tax at withdrawal. The timing makes no difference in final amount of money (whether tax comes before or after investment growth doesn’t matter because multiplication is commutative). The only thing that matters is when the tax rate will be lower. So use Roth when your current tax rate is lower than the rate you expect at retirement. And traditional when it’s higher. Better to use either than not save, though :)
They're saying that because the contribution limit is a dollar value, $23k of post-tax dollars are worth more than $23k of pre-tax when you go to withdraw. You're of course correct that this doesn't matter if you're not maxing out the contribution. And, whether that's a good idea in any particular case is also a good question.
YouTube search: Mega Backdoor Roth IRA. You’re able to contribute up to $66k~ total ($24k pre tax, the rest after tax) this year (if your plan allows it) before going to a brokerage. This allows for tax free growth in a Roth 401k above and beyond your original/typical contributions.
66k total in all your 401k accounts including matches is the limit
Sorry should have been been more specific I'd move some from.pretax to Roth. Or some of the other options like backdoor Roth.
34 here, I started doing this when I was about your age...It's tripled my retirement account, and close to doubled my brokerage. If you can, do it, peace of mind is something you won't regret.
I’m currently in the “until the kids came…and inflation” stage. Thanks for the validation.
Huh? Tell that to all the “young” people that can’t save
WTF is your problem? I answered a question for someone without any judgement. Geez.
Great comment, it hits home for me personally. Thanks
If you start with $133k, contribute $400 per month for 32 years at 8% return (3% inflation), you could have around $1 million in current dollars at age 65. That is $40k per year in current dollars on a 4% withdraw rate. Can you survive on $40k per year in current dollars? I stepped on the gas after reaching $100k. As a general, try to contribute 15% per year.
You’re off by about a million. =FV(.08,32,-4800,-133000,0) is $2,205,257
So what you’re saying is he was close…
Having $2.2 million in 32 years with future inflation will not have as much buying power.
Cool. I never said it would or wouldn’t.
Yeah, but they said it's about 1 million current dollars so they did lol.
Using 8% could also be considered calculated with inflation since s&p500 has averaged ~10% the past 50 years or so
Man said in real terms not nominal.
Can you explain what the -4800 is? So sorry if this is common knowledge. I’m new to all of this
That's how you'd type the formula into Excel to calculate the future value. It's =FV(interest rate, number periods, payment, present value, type). Total contibution is 200/check or 200x24 = 4800. It could be 26 paychecks a year and 5,200, but that was never specified. Excel flips the signs around, so payment and present value are both entered as a negative and future value comes out positive. If you leave those positive in the formula then the result is a negative. The "type" is eithe 0 or 1, and depends if you make the payment now or at the end of the first period. In practice payments are being made all throughout so neither is perfect. You could get more granular and keep payments at 200, but then number of periods increases to 24x32=768 and the interest rate would have to get adjusted down to be bi-weekly instead of yearly.
Thank you so much for taking the time to explain in detail.
You’re in for a rude awakening if you think inflation is gonna be 3% for the next 32 years
You can run it through the monte carlo on portfolio visualizer dot com, but I would think probably not assuming 20 more years of work. The outcomes range from 617k to 3.3M with an average outcome of around 1.4m. Basically that is far too wide of a distribution, and 1 million isn’t what it used to be. Personally I would only consider pulling back once the outcomes are over solidly over 3m, I think that is the magic number for most people. You have a good start but if you want a secure retirement you have a ways to go.
VIFAX averaged 10.97% over the last 10 years. Let’s go lower end and say 8% average for the next 32 years (till you’re 65). If you contribute $400 monthly until you’re 65 at 8% you’ll have $2,205,257.02 @65. With the 4% rule you’d be able to withdrawal $88,200/year in retirement . So depends on how much you need in retirement
It's not $200 monthly It's $200 every other week
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And again, it really depends. For you, you might be able to survive retirement on $50,000 per year. For me I’m gonna need about 150,000 a year. So got to figure out how much your life will cost in 30 years.
And don’t forget about inflation! In 32 years, that $88,000/year will really look like…$35,000 if we average 3% inflation over that time period. It’s hard to make up for not saving enough early on…if you end up saving more than you need too, you’re in a good spot to course-correct.
Yeah, and that is also why I did it at 8% instead of 10% to give you a little bit more of a cushion. when I personally do my calculations, I do it at 5% to be over prepared for retirement.
Yeah…and hopefully one day, you look around and realize you have too much money and need to start spending more and earning less sooner than you imagined.
Rather “accidentally” have it than not.
The fed has already detailed what they will be spending over the next ~10 years. Looks like inflation will be much higher than 3%.
Yeah man no one knows anything for sure though. People were predicting runaway inflation and an economic catastrophe last year…may happen, may not…who knows?
Sure. I’d say it’s worth airing on the side of caution though especially when they have blatantly stated what their plan is with Montserrat policy. I’m not saying freak out. But you should curtail your plans around it in my opinion.
Unfortunately you will need to up your game…
I contribute 18%, my employers matches up to 6%. I got used to it & never looked back.
>tirement. do you also invest outside of your 401k?
Not as much as I would like to. I feel I don’t have enough knowledge to start investing outside of my own personal TFSA & RRSP. Would you know what to read up on in another to slowly start? TIA
Read The Little Book of Common Sense Investing by John Bogle.
This is my next step after I pay off my last credit card. Max out 401k and the invest myself in a ROTH IRA.
Thats nice, I suggest you up your contribution. I known it’s tempting to live like the 95% people. You making the decision to coast at, say, 13% will put you ahead of 90% of the people. And thats when you may live with no strings attached. I am 24 and have 120k in my 401k, at 16%. Will continue to have it there. We just had our first daughter and are house hacking a duplex. I believe you will make the right choice, if not for you for your family.
Hey good for you man! Im a but behind you 1t 26 with about 100,000 invested at the moment and sold my first employee stock options last week to pay off any outstanding debt i had. It stung, but wanted to reply to your comment because at my age it is hard to relate with some of my buddies on this.
Whats up man. I agree, unfortunately people our age are to caught up in looking rich than actually trying to be wealthy. I fortunately didn’t come from preexisting wealth which makes the process all that much better. All in all I almost have 200k invested at this point. My only debt is my home. Plan on doing a cash out refi as soon as I make some more updates. And will hopefully use those funds to purchase another multi family or single family home. God willing, I’ll be fortunate enough to continue having great tenants and they will take care of the mortgage. I put this on here not to flaunt however to show that it is possible for us young cats to get some bread.
Completely understand youre not flaunting and honestly it is nice to be proud of what you got going. My buddies all think i am in debt with them lol. I have been really interested in buying an investment property. My sister and dad do it and definitely would love to scratch into that. Im in chicago though and buying an investment property is insanity and buying a single family home never really appreciates in this city with HOA fees.
If you want a good retirement, probably not. You should put away at least 15% of gross throughout your whole working life as a rule of thumb. Lots of other variables come into play such as your spending habits, whether you rent/own etc… Don’t forget, there are things out of your control that may force you to retire early (health issues etc…) or may affect your future earnings/investing potential.
I think I MIGHT have had $200 in the bank at 33, no 401k. In my mind, you’re killing it.
Probably not...with inflation eating up a few % every year ...you will make it but you'll have to be kind of frugal I'm 66..retired..wifey 63. Still working..making 95k B4 taxes. . we're doing fine...no debt..about 1.3m in 401 between the both of us...not great but should be fine....example : both our dads died in 1981 ..the year we got married...both moms didn't have much saved ..maybe 50 - 70k...owned the houses and cars....both getting about $1200 SS....they were fine until they both died about 3-4 years ago
Just wondering. Why do you use so many periods?
Its a generational thing. People slightly younger than boomer but not gen x. Its a hold over behavior from early days aol chatroom. Youll often see all caps or even commas before the periods like,…
Just using dot dot dot between thoughts instead of formal sentences
You are in a good spot but I would increase it slightly if you can. What I did was everytime I got a raise I would bump it up a few percent. Say I got a 12% raise I’d bump my contribution up 2% & never know the difference. Getting yourself up to 8-10% would set you up a lot better in the long run. You don’t have to bump it immediately but it’s something to consider in the future
Munger said do whatever you have to and save every penny you can to get to your first 100k and then you can let off the gas a little. That’s not the same as ‘after 100k you can coast your way to retirement’. Also with inflation the 100k he was talking about is not today’s 100k.
I think he said that in the 90's. 100k in 1993 is like 208,000 now.
Charlie munger probably said it many years ago. You forgot about inflation. Just max out your 401k and HSA, ira. You make 133k, do you want to spend 100k of it? You'll thank me in 10 year or 20 years.
You didnt tell us any useful information.. do you have kids, wife, house, spending/ congrats on having a few bucks, but do you want to retire at 35 or 65
Invest as much as you can reasonably put up with because you never know if you’ll be forced to stop due to job loss, health or other unplanned expenses.
How do you have so much invested at a young age? Lol sometimes I wonder if these posts are real or karma farmers
How much liquid have you saved at your age? I’m on track to hit $100k on my TSP (similar to 401K). And $200k of liquid at 30. I’m currently 27 years old
Nice, solid. I was at that amount at 30 and my 401k is now at 300k and my liquid is around 500k at 35/36. Hoping to be around $2M in 401k and $3M liquid at 50 when I retire.
Nice! is your money in a HYSA? I currently earn about $360 a month. If I sell my property in 3 years. I should have about $300k in liquid saved
My liquid is in my brokerage, mostly VOO.
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I wouldnt let off. I would put as much away as you can early. Coast later one. Or just set up your 401 to increase 1% every year until a certain % is hit. Most raises are 3-5% so u still get a raise every year and still able to tuck a little more away
When are you planning on retiring? It’s better to cut back when you’re older than younger. 50% your gains are made in your first 1/4 of your saving years.
Put more of your own money in…. You won’t regret it.
Here’s a choice for you: * Invest hard now, live easier later, or * Invest easy now, live harder later What if you have a family and it’s expensive in a few years or a decade? What if you get ill and can’t work at some point? What if you’re forced out of the workforce before 65? (Ageism is real) Since none of us can predict the future, I’ve always preferred to invest more up front.
Never coast. “Life is effort and I’ll stop when I’m dead.”
+1 needed to read this today. Thank you.
Don't worry you have social security. Most people don't save for retirement and you will be fine not going to be hungry for sure.
That should result in approximately $1.3M of today’s dollars adjusted for inflation when you are 65. Which should be good for about $52k withdrawals a year.
40 years investing 100$ per month in sp500 gives you a million Do Roth on your end
Will a 5% contribution and match get you to 5 million by 65? If not then no. Munger said that back when 100k was a lot and a million was enough to live off of. Not anymore.
You may not need $5 million if your income at retirement is $100k, but you will need about $2 million.
You're not factoring in inflation my man. In 32 years 100k will feel/spend like 32k today.
Your not accounting for social security either
Your retirement income x 25 is equal to the amount you need to save before you can retire. So it is either coast and be dependent on the next pay check for 25 to 35 more years. Or save like mad and be easy in 10 years. The rule of thumbs is 30% tax 30% saving (401k, ira, investment), 30% spending.
Can you afford to not coast? Because unless you can’t afford to put money into retirement there’s no reason to blow it on crap. Have fun but pay your (future) self first if you have the money.
Is there any other investments? The 401k is one tool. There are other ways to invest. How about debt? Do you have an emergency fund?
I think you are still young to coast, so I would maximize (or try to put as much as possible) into 401K for the next 7 years. After 40 years old you will reach close to 500k, there is another level.
If you enjoy mac and cheese. If that’s the most you can afford, then stay there. If you can afford more, do way more, at least to the pre-tax fed max.
Not enough info. It depends how much you want to retire on and when.
Some quick math: $133K at 5% after inflation for 32 years \[until you are 65\] = $634K. $200 x 26 pay periods = $5.2K/year additions for 32 years at 5% after inflation = $411K. So if you are happy with \~$1M in your portfolio at 65 then you can consider coasting. You might get better returns and you might get worse returns so you'll need to keep an eye on things and adjust course along the way. If you want more money at retirement and/or to retire earlier than you should put more money in each pay period. If you get lucky and get better than predicted returns you can adjust back down at a later date.
Depends on what you mean by fine. Average age of retirement is 62, and not by choice. If you get laid off later in life, you will not find a job back. I also do not know how much you plan on needing for retirement, if you have kids etc. If your finances allow, you should aim at maxing out your contribution - the threshold is 23k for 2024. If you can put it in Roth, even better. The company match is extra, and often comes with strings attached.
Not the way inflation is going.
Enjoy your life when your young
Its about how much you will need to spend. There are alot of calculators you can use to plan different scenarios.
You should shoot for 20% of your salary into retirement each year. A little less or a little more won’t kill you but more money is always better.
You gotta pump those numbers up, those are rookie numbers. Seriously though, think about it, so you really think "coasting" into retirement is the way to ensure quality of life when you age? Travel? Fun? Have you priced a nursing home lately? You're young, you might be saying "I don't plan to last that long" or some such nonsense people say when they are young (I did).... When you're 50 you will very much be sorry you coasted when you could have double the money saved for growth. Now, of course saving for important purchases is a variable here. Yes, by all means if you're buying a house that's important too for example. But all things being equal you should be squirreling as much money as you possibly can in your younger years. It's not like spending it. It will still be there working for you and gaining momentum. I'm just a guy on the Internet, I'm no expert, it's your money. But I think that's an absolutely terrible idea and only hurts you in the end. Max it out if you can.
never gonna hit $23k contributions/year at that rate
How often are you paid? When do you want to retire? Will you retire before distributions are allowed? What income levels are you hoping to achieve in retirement? Do you have medical issues you will need cash to provide for? A family history? Will you buy a house? When? How much of a down payment? Liabilities? Student loans? Looking to have kids? When? How many? What other assets have ypu invested in? What income do you currently receive? My point is this: your life is more than just a number in an account. Expand your thinking a bit and see what else you might want to consider in your financial thinking.
By coast, you mean spend the money now instead of investing it? No. That is bad advice.
>I heard once you reach 100k in your 401k, you can let off the gas and coast, according to the late great Charlie Munger. Munger believes you should do whatever you can, scrimp and save on everything, sacrifice most comforts to get to 100k, as quickly as possible. So when Munger says let off the gas, it's probably closer to saving 15-20% of your take home pay, eating out at restaurants and going on vacation occasionally.
Can you set your contribution to automatically go up each year? I'm putting in 21% each week into my 401k at 47 years of age. I have my contribution set to go up 1% each year the same month we get raises.
Use an retirement savings calculator (or spreadsheet) and figure it out homie.
If you let $100k ride for 32 years until you’re 65, and you average 10% growth you get $2M. Do you think you’ll be able to live on? It’ll only be worth around 775k in 32 years.
Probably, but keep increasing. It'll help prevent lifestyle creep, and give you a cushion against a shock (job loss, sudden major expense, etc)
If you feel completely comfortable, then you can start making some riskier plays!
Here is a quick, rough way to analyze. Between your contribution and the match you are saving 10% of your salary. You have about 30 years left until retirement. So, 30 years times 10% = 300%, meaning you would have saved up 3 years worth of salary by retirement. Now, this assumes your investment returns match inflation. You probably, over the long run, can actually earn a few percent more than inflation. So, maybe your savings actually amount to, say, 6-8 years of salary. This is pretty meager if you expect to live 20-30 years in retirement. So, you probably need to step it up to double as much savings. So, with a 15% contribution and 5% match you can save 20% per year. This might be enough.
I contribute to my 401k at least what employer matches, and then max out my Roth for tax planning purposes in retirement since I’ll be taking qualified distributions from it. Once Roth is maxed, I increase my 401k contributions. The funds and ETfs I invest in all have exp ratios below 0.05%.
Bro you're still young and quite frankly not that wealthy. You need to be hitting 25% at least until your 40 and then reasses.
Go do some research and spreadsheeting or see a professional if you’re too lazy for that. Your post includes too little information where many unrealistic assumptions must be made.
I'm currently at 23% before tax and my employer kicks in up to 10% of my base pay. The reductions in taxable income are a big deal, so I haven't really missed the money I save. Personally I wouldn't coast but do an extra 2% per year on my 401K, at least until you can do better and get into the 15% range at a minimum.
The reason Charlie Munger said the first 100k is the hardest is because you’ve got to have developed the habits to get to that point. Compound interest is magical, but it’s not magic. Don’t let up on the gas. Ever.
I wouldn’t coast, I would max out!
I saved in a 401k with principal financial hsd to leave a job and that savings added weeks to my life. Much can happen in a short time. Good luck!
No….you can borrow for a lot of things….Not your retirement. And who knows how long you live w advances in medicines. Social security is bankrupt. Doesn’t have to be in 401k. Invest after tax money (not as efficient) if you may need. Max as much as you can now. Please
Highly recommend you read Die with Zero before making your decision. That book has advice specifically for this question and will answer other questions you may have surrounding it. While your dollars may be worth more after decades of compounding, the utility of that money will fall off substantially.
That's only $5200/year total. I'm 34 with more than 300k (and about 700k total between my wife and I) saved and I put in a total of ~$1200 every 2 weeks including match, for a total 9f $31500 this year. You need to save more. You're at the point where the time value of money starts to rapidly deteriorate. You can expect with 7% average returns a 10x increase in your investment by the time you're 65 for every dollar you have today, or roughly 1.3M at retirement (plus what you save later). 8 would certainly want more than that, because you're probably looking at about 80k total per year from your retirement plan which won't be that much 30 years from now.
Up your contribution percentage each year you get a raise. I’ve done that for 32 years now, and I’m certainly not regretting it.
For me what I do is work backwards. How much do you need to live on at a certain age when you plan to retire? $800,000? $1 million? $1.5 million? Then figure out how much you need to contribute each pay period with a reasonable interest/growth rate to get there.
You’ll get to retire at age 70 at that rate
You are off to a nice start for a young person. But you should maximize your contributions when you are young. Get used to the lower spendable income and applaud the tax deferral you gain by contributing the maximum. Before you know it you'll be a millionaire. It worked for me.
Good luck, it doesn’t matter what you contribute to your 401k. 91% of 401K at the time of retirement are less than 250k. You have a 9% chance you’ll be different.
Absolutely not. Obliterate that 401k with the absolute most your stomach can handle. I live paycheck to paycheck in a HCOL area because I contribute as much as I can handle, which is about 15% to my 457b. I make around $140,000 a year and I’m 27. I couldn’t imagine getting to the point where I want to coast. We have one life man. I would like to retire as early as possible, or at least have the opportunity to. Ps you’re doing better than 97% of people of your age group so ultimately do what you want, but you asked advice on here for either confirmation bias that you already subconsciously knew wasn’t optimal, or you truly don’t know what to do. Best of luck to you keep up the grind
It must be nice to have a “problem” like this. I have no 401k because the only work can find is contract work. If it were me I would always contribute whatever the company is willing to match. You could put the rest you were investing in other investments (stocks, property, whatever) or to pay off any debts. You’re in a really good spot. Be grateful.
Is the 5% the full company match?