Retirement litmus test

[stoney508]

Im 26 years old and have been contributing to my 401(k) 6% to get my employer match. I currently have 7,390 in this account.

My question is what can I expect to have around 30 years old, and if this amount was following a litmus test for my retirement am I on track to meet it?

I recently changed poisitions at work and not sure if I will be able to get the same amount of overtime but I would put my income at around 45,000/yr. gross.

I would hope that I am on track with my 401(k) account at least, I have a ROTH IRA also but I want to see what my 401(k) is going to contribute in order for me to adjust my ROTH to meet my overall goal I am contributing about 3% to this right now with 1,300 invested so far in the ROTH account.

I know I could do the math myself but not sure if I would get the compounding interest myself correct. Also if there is a online calc out there to help with it I would love to play around with it.

[riverwed070707]

General rule of thumb is to have one years salary saved in retirement by age 30. I'd guess you're a little behind but I didn't run your numbers. The calc you need is called a future value calculator like this one http://www.jaxmetro.org/calc/fv_multi.html

I'd work toward contributing 15% between your 401k and Roth, not including any employer match. That shoudl get you on target to meet the 1x rule.

[stoney508]

I am keeping everything were it is at for now,at this moment im also paying student loans down and then ill work on getting my 3-6 month EF but its going to take time right now because there is only so much I can do with whats coming in each month. Im trying to get myself set up so im not living paycheck to paycheck but running a month ahead before I can make changes to my contributions.

[stoney508]

Is using the company match of 6% with my contribution of 6% and my additional Roth at 3% a total of 15% not an alright way of looking at my contributions?

[KTP]

Here, I did a little calculation for you making some assumptions.

Say you make $40,000 a year. You save 15% of gross which would be $500 a month.

Starting now with $7390 and assuming a real rate of return of 4% (nominal return of around 6.5% including inflation), I find that in 30 years you would have $366,603.99

This is in today's dollars since I used a real rate of return. You would actually probably have $582,393.31 in future dollars, but they wouldn't buy as much, so it is better to use present day dollars so you can get an idea of the spending power.

Could you live on $14,664 right now, today? This is what a 4% SWR would give you on a retirement account with $366,603.99.

If not, then you might need to save a bit more. Realize that you will probably earn more in your late 30s, 40s, 50s, so it is not all bad news. 15% in your 20s is very respectable.

Here is the calculator I used...very simple: http://www.bankrate.com/calculators/...alculator.aspx

[MakeAStash]

At a 15% savings rate most people can retire after about 40-some years of work. If you want to retire sooner, save a higher percentage.

[stoney508]

I am only starting out I do expect my wages to be better 5 years from now with better job prospects. With a college education I can only hope that things will change for me in the future. My retirement contributions are limited as of the moment like I said with Student Loans which I believe is more important to get rid of before increasing the amount im saving for retirement. I will be able to contribut the 15% as well as possible increase my roth to the max after my loans are gone.

[kork13]

Short answer: No, you're not on track.

Long answer: No, you're not on track YET.

Keep contributing up to the match on your 401k--that is, as people say, "free money." Beyond that match, you should focus on your Roth IRA while your income (and thus your tax burden) is lower. Do what you can to try to max out your Roth IRA ($5500 per year at present). I understand that your SL's may complicate that, just do what you can for now.

The good news is that you're starting young. If you can get to the point where you're consistently contributing 15%-20% of your gross income to retirement, you'll be sitting pretty. You've got over 40 years of income-earning years to go before retirement, which gives you alot of flexibility and alot of time for your money to grow. Focus on keeping your expenses low, save what you can, and you can do just fine.

ETA: For a pretty good retirement calculator, try FireCalc. Once you get all the inputs set, it's a pretty powerful tool.

[snafu]

Retirement accounts are long term and are based on the advantages of compounding. The end value has a lot to do with the instruments you choose as your investments, your risk tolerance and the fees/costs visible and not - charged against your holdings. Just now, with interest rates so incredibly low, those who leave savings in interest instruments are losing money relative to buying power. At some point in the future interest rates will increase and the equity risk will need to be re-evaluated.

[disneysteve]

Is using the company match of 6% with my contribution of 6% and my additional Roth at 3% a total of 15% not an alright way of looking at my contributions?

That is not correct. The employer match doesn't count when we say you should be saving 15%. We mean you should be saving 15% of your gross income out of your own money - not counting any match. If you earn 100K, you should be saving 15K before any match.

Why is that? Why doesn't the match count? As far as I'm concerned, it is about living well below your means. If you count the 6% match, then you are living on 91% of your income. If you dont' count the match and save 15%, you are living on 85% of income. Being able to live on a lower percentage of your income forces you to keep your expenses lower. In turn, that reduces the amount you need to save for retirement.

[stoney508]

i dont "plan" on living much differently than I would be able to afford right now. If I get a raise that goes strait to my loans or to my retirement right now it is going to my loans but once I get those down my retirement contributions will go up. I am not setting myself up to fail in the future im trying to do the best I can now until I can get out of debt and then start hitting everything full force once im done with that.

I have paid a little over 10k in SL since feb so I know i can live on very little and have taken steps to reduce my bills.

[riverwed070707]

That is not correct. The employer match doesn't count when we say you should be saving 15%. We mean you should be saving 15% of your gross income out of your own money - not counting any match. If you earn 100K, you should be saving 15K before any match.

Why is that? Why doesn't the match count? As far as I'm concerned, it is about living well below your means. If you count the 6% match, then you are living on 91% of your income. If you dont' count the match and save 15%, you are living on 85% of income. Being able to live on a lower percentage of your income forces you to keep your expenses lower. In turn, that reduces the amount you need to save for retirement.

In addition to what DS said, many people don't realize that when an employer contributes to your retirement, that money may not be "yours" for several years. Its called being vested, and in many cases the employer can revoke a percentage of the contribution if you leave you job in the first 4-5 years. You never know when another opportunity may come along and it would be really crummy to think you were on track only to have it taken away because of a job change.

i dont "plan" on living much differently than I would be able to afford right now. If I get a raise that goes strait to my loans or to my retirement right now it is going to my loans but once I get those down my retirement contributions will go up. I am not setting myself up to fail in the future im trying to do the best I can now until I can get out of debt and then start hitting everything full force once im done with that.

I have paid a little over 10k in SL since feb so I know i can live on very little and have taken steps to reduce my bills.

Don't be defensive, you asked for opinions and the board is trying to help. The fact is that plans change, and its a lot harder to save and be frugal when you get married, have kids, etc. When you're young and already accustomed to living on a college budget is the best time to build good saving habits.

[Petunia 100]

Well, I do count my 3% match as part of my 15%.

[MonkeyMama]

@Stoney - I think you are doing great. As others have alluded to, it's more of a curve than a straight line. The early benchmarks often don't make much sense because they assume a straight line, when in reality is that eventually your money starts to work for you and compound. I may have personally had "1/10 income" saved up at 26 and "2 x income" saved up by age 36, and that is with consistent and substantial contributions from age 22. But, I think there is a learning curve early on, income was raising rapidly (so hard to saved up a large percentage of the new higher income), and the market sucked (2001) and so on. Just to reassure the 20-somethings that it starts out painfully slow, and not to get too focused that not hitting a certain benchmark as a failure.

I personally believe when young/starting out is fine to rely on employer match to get other financial eggs in a row. I agree with Steve that you don't want to be spending/splurging that money. Caveat: Just know the match won't be there forever and have a Plan B to make up the contributions if the match goes away. I personally had a generous match for 7 or 8 years and I think it would have been absolutely ridiculous to put all that money in retirement, during our lower income/starting out years. We instead got all our other ducks in a row and have a well rounded financial picture. My match is long gone, but with all our ducks in a row it really doesn't matter one bit. It is dangerous to rely on the match and to assume it will be there forever, but it allows you to make fairly large retirement contributions while paying off debts and building a nest egg. So, heed the warnings and be careful but I think you will be fine.

[stoney508]

I have known about being vested in my 401(k) and I have 3 more years to be fully vested I know the exact amount I would leave with and I want to be able to have my emergency fund built up in case I do move to a different job so I could add that amount to my funds so I wouldnt lose that if you can follow me on that.

I do understand the 15% you are saying and I was not trying to come off as being defensive I will up my contributions when I can but at this point in time im looking as the company match as part of my 15%. Does that mean I always will? NO, I am using that as a short term "fix" because I dont treat my SL payments as Savings I already have that money earmarked for other budget measures when the time comes and the first thing to increase will probably be my EF, then Roth. After that may be my down payment on a house and if I have more at that time a car fund or revaluate my budget and increase my 401(k) contributions.

I do thank everyone for responding im just trying to wrap my head around things now to hopefully get a better understanding of what to do in the future as well as have a place to vent a little about my worries and concerns.