Retirement litmus test

[stoney508]

Thank you jim that does help and at this point im looking at my 401(k) and ROTH for after 59.5 but I also believe that I may be able to retire before then if I get everything under control like you are saying. I am gathering the information and learning to possibly do that one day (retire early) but my retirement may be a lot different than other because if im in a job I truly enjoy by then I may not or may do consultant work by that point in time. Right now its setting up a system as hard as it is when younger saddled with Student Loan debt

[MatthewC]

To elaborate, let's say you and I each earn 100K.

I save 15% of my income and get no match.
You save 0% but your very generous employer puts 15% in for you.
So each of us has 15K/year going into our retirement accounts.
In 30 years, with identical investments, we will each have about $2.3 million.

Now comes the difference - retirement income.

I have spent my life living on 85% of my income or 85K.
You have spent your life living on 100% of your income or 100K.

If we each draw 4% from our accounts, that will give us $92,000/year of income.
That's great for me since I'm used to living on $85,000. I get a raise in retirement. Sweet.
You, however, get an 8% pay cut since you are used to living on $100,000.

I have to agree with this compeltely. Great post, Steve.

People should definitely get the match from their 401(k) plans and max out their ROTH IRA accounts. ROTH IRA accounts allow for your money to grow without needing to pay taxes on the profits on the investments.

Also, I probably would not stop there. Putting away extra money early on in your retirement savings can make a huge difference later and here's why :

When you are saving for retirement, there are two forces at work growing your savings : your contributions and the compound rate of return. When you start out, your contributions will make up the biggest part of this and will continue to do so for several years. Putting extra money in during the first few years can make a huge impact on what you end up with. Contributions 20 years down the road will make far less impact because the compound rate of return has kicked in strongly at this point. If you happen to be making 10% a year on your investments, this means that 1 dollar invested now is worth $6.72 in 20 years.

In fact, using 10% as the compound rate of return and investing the same money for 15 years and then stopping would leave you with about 80.7% of the money that you would have if you continued to contribute for the next 15 years (half the difference of which would be the contributions you made in those last 15 years, the other half coming from the compound rate of return on those contributions).

The lesson here : Put in as much as you can as early as you can because contributing one dollar now has a bigger effect than contributing three dollars in 20 years. (You need slightly less than a 6% return a year to turn $1 into $3 in 20 years)

[stoney508]

Well its been about 2-3 months since I started this thread and I have movement in my numbers since then my 401(k) is around 9,100 my ROTH is around 1,900 I have been lucky and had a little growth happen and I am not sure if at the first of the year I will be getting company stock added to my 401(k) which could boost my 401(k) amount I am trying to figure that out but have just waited to find out. I have 3 more years and 3 months until im 30 years old and have my SL on pace to be done shortly after im 30 (I hope). Am I looking better at getting around 35-45k saved up? (35k is my hourly gross but 45k is with my overtime)

[LivingAlmostLarge]

Congrats! Awesome!

[stoney508]

Another update: My 401(k) is around 11,850 with my company's annual match my Roth is around 2,000 I am probably looking for different positions elsewhere so I will probably lose close to 2,000 from my 401(k) if I end up finding a different job. A question about what I should do IF this happens is do I roll this into my next companies 401(k) if I have that option or do I convert to a regular IRA then convert to my ROTH? I know I would have to pay the tax if I converted but since I am only 26 (27 soon) I think it would be more benefitial to convert to my ROTH because of the tax implications further down the road. What are your thoughts?

Also, am I getting close to having 45k or will I be short the 1x my income by the time im 30? I am contributing 7% to my 401(K)increasing 1% every year and my company matches 6% up to 100%. I am also contributing 100 a month to my ROTH until my student loans are paid off.

[kork13]

Another update: My 401(k) is around 11,850 with my company's annual match my Roth is around 2,000 I am probably looking for different positions elsewhere so I will probably lose close to 2,000 from my 401(k) if I end up finding a different job. A question about what I should do IF this happens is do I roll this into my next companies 401(k) if I have that option or do I convert to a regular IRA then convert to my ROTH? I know I would have to pay the tax if I converted but since I am only 26 (27 soon) I think it would be more benefitial to convert to my ROTH because of the tax implications further down the road. What are your thoughts?

Also, am I getting close to having 45k or will I be short the 1x my income by the time im 30? I am contributing 7% to my 401(K)increasing 1% every year and my company matches 6% up to 100%. I am also contributing 100 a month to my ROTH until my student loans are paid off.

If you do end up switching jobs, unless your new company's 401k plan is simply fantastic with good fund selections and low total expenses, your best idea is almost assuredly going to be moving your 401k into a Traditional IRA. As for if/when to convert to Roth, that depends on your tax situation.

How close are you to the top of the 15% tax bracket? Or are you already in the 25% bracket? If you're in the 15% bracket, I'd say that it's definitely worth converting from the TIRA to a Roth IRA. Over a couple years, you could convert the 401k money up to the top of the 15% bracket. That scenario will save you about $1000 in taxes now, or about $15k in future retirement funds. If you're already in the 25% bracket & it's unlikely for you to be able to get down into the 15% bracket in the near future, you can still convert TIRA to Roth, it's just not quite as advantageous.... though it still could very possibly be a good idea for you (personally, I would do it). Just do the conversion over the course of a few years, to spread out the immediate tax hit across a few years.

[corn18]

Always fascinates me when people argue over a "rule". 15% isn't a rule. 25% isn't a rule. 5% isn't a rule. Not counting the 401k match isn't a rule. There are no rules. But if you don't want to think too hard, the 15% recommendation seems to be a great place to start. If you decide something else works better for you, then make adjustments and execute your plan.

[stoney508]

Well a lot has happened in the last 8 months but my 401k is now up to 39,000 and my roth up to 2700 even with the markets being a little lower. I think I am pretty close to my goal of 1 years pay by the time I am 30 with is about 2 years 4 months. And thats only with modest gains in the market. I will be turning more aggressive with the funds hopefully sooner rather than later but as of this moment I am not worried about my retirement. I am going to be more focused on my SL and hopefully look at getting a house in the next year with my wife.

[Petunia 100]

Well a lot has happened in the last 8 months but my 401k is now up to 39,000 and my roth up to 2700 even with the markets being a little lower. I think I am pretty close to my goal of 1 years pay by the time I am 30 with is about 2 years 4 months. And thats only with modest gains in the market. I will be turning more aggressive with the funds hopefully sooner rather than later but as of this moment I am not worried about my retirement. I am going to be more focused on my SL and hopefully look at getting a house in the next year with my wife.

So since you started this thread, "my fiancée" has turned into "my wife"! Congratulations.