Retirement Savings: Just get the ball rolling ASAP, and keep at it for 5 years

[slashbinslashbash]

At first it sucks. You can only contribute like $5500 a year into your Roth IRA. Assuming you can afford to do that, you do it and it's like... hmm. This isn't much money. Like not much more than I keep around in my checking account or whatever. So I can afford like 10 shares of Apple. Whoop.

But once you hit around $20k in your account (~4 years of max Roth IRA contributions).... you're like holy shit, son, this is some real money here. It becomes fun and self-motivating. You want to keep adding to that pile because it's already a big pile and it's awesome to have that much money in one place.

I think this idea will scale up or down with your income. Maybe you make 4x more than I do so you don't qualify for a Roth but you can contribute $20k a year to some other kind of retirement account. Just do it. And keep at it. Once you hit $80k-$100k in your account you will start to think of it more highly.

TL;DR: Just put the maximum you can into your retirement savings for 4-5 years, and at that point it will be a large enough amount of money (relative to your normal everyday accounts) that it will be fun and addicting to keep putting money into the account.

 

[dud]

I don't know what to say other than my brain hurts ...

 

[s0me0nesmind1]

These are the kind of things that shouldn't be some kind of mind blowing discovery. Though I am very happy for you.

I have successfully maxed out my ROTH (and my wife's) for the last 3 years (previously only did 401k contributions). Now I am looking to max out my 401k for once as well. All the while, tossing more into principle for our home ownership. Work travel has definitely helped me with this. Less time at home spending money = more leftover.

 

[maddogchen]

whatevs... max out your 401k and its 17k right there to play with in one year. Add my employer contribution of 13% of my salary and its 30-40k in one year.

 

[s0me0nesmind1]

whatevs... max out your 401k and its 17k right there to play with in one year. Add my employer contribution of 13% of my salary and its 30-40k in one year.

13%? Where the fuck do you work that gives that kind of money? 😵

I can't say mine is bad with a hybrid 3% plus a pension contribution, but a solid 13%? Sounds a bit insane.

 

[manimal]

wife and I used to do contract jobs so we would save 20 percent. When we got full time jobs that payed a ton more we kept our contributions at 20 percent.


I am semi retired raising my kids in my 40s comfortably. Save as much as you can if you want options in life. We could have had bigger apts and houses and cars and such then or have more options now.

Was hard to sell my businesses but now


like cartman


I can do what I want

 

[maddogchen]

its to match the other companies in the Silicon Valley. For our early retirement, instead of stock options, they just dump our bonus into our retirement funds

 

[Genx87]

I max out Roth and 401K and add some money on top of that each year.

 

[slashbinslashbash]

whatevs... max out your 401k and its 17k right there to play with in one year. Add my employer contribution of 13% of my salary and its 30-40k in one year.

Ok, did you notice the part where I talked about it scaling with your income? 30-40k in one year isn't enough to be meaningful to you.... not enough for you to WANT to continue to do it. Do it for 5 years, accumulate 150k-200k in your account and it starts to be meaningful.

 

[s0me0nesmind1]

My problem is I always feel like I'm going to need more cash.

Right now we have ~$60k in liquid assets, but there is always a demon inside telling me we need more on-hand.

My wife wants a new car, better save so we keep the same amount of cash on-hand.
We want to have a kid soon, we're going to have a lot of expenses to fill the baby room.
We want to have a kid soon, better start saving for his/her college-fund.

It's a double-edged sword, because while having liquid assets are useful at times - having cash just sitting in a shit interest bank account not accruing any real interest (Retirement accounts) is not useful.

 

[slashbinslashbash]

And this is all just a part of larger financial planning / competence stuff. Of course pay off your mortgage early. Of course don't finance cars. Of course don't get into credit card debt.

This is specifically about your retirement accounts and how they feel pretty small/meaningless when you start out, to the point that you question why you're even contributing, but around year 5 it will start to feel pretty big and meaningful and it will have its own momentum.

 

[ghost recon88]

whatevs... max out your 401k and its 17k right there to play with in one year. Add my employer contribution of 13% of my salary and its 30-40k in one year.

So $23k that your employer dumps in is only 13% of your salary?

 

[rcpratt]

I'm not sure why this is a thread. But I'm glad you're one of the few actually preparing yourself.

 

[s0me0nesmind1]

Ok, did you notice the part where I talked about it scaling with your income? 30-40k in one year isn't enough to be meaningful to you.... not enough for you to WANT to continue to do it. Do it for 5 years, accumulate 150k-200k in your account and it starts to be meaningful.

Uhhh, 30-40k is incredibly significant. I think he was talking about 30-40k each year. Plus, anyone who actually retires isn't going to retire in Silicon Valley where it is expensive as fuck. They are going to be half-way smart and move to states that hold advantages for retiring.

 

[ghost recon88]

Holy crap I want to work in SV just to get my retirement built up insanely fast in 10 years, then retire to somewhere cheap! Retire by age 35 :awe:

 

[s0me0nesmind1]

So $23k that your employer dumps in is only 13% of your salary?

He said he lives in Silicon Valley. Unless you are flipping burgers or clean up toilets you had better be making $100k MINIMUM.

Just use a cost of living calculator and you will see that $50k/year in other parts of the US is the equivalency to $100k in Silicon Valley.

Holy crap I want to work in SV just to get my retirement built up insanely fast in 10 years, then retire to somewhere cheap! Retire by age 35 :awe:

Depends. How much debt does it cost? How about cost of living in general? If you don't have any cash at the end of the day, and you aren't building any equity (mortgage) - then it might not be as good as it seems.

 

[jlee]

And this is all just a part of larger financial planning / competence stuff. Of course pay off your mortgage early. Of course don't finance cars. Of course don't get into credit card debt.

This is specifically about your retirement accounts and how they feel pretty small/meaningless when you start out, to the point that you question why you're even contributing, but around year 5 it will start to feel pretty big and meaningful and it will have its own momentum.

Why?

My mortgage rate is 3.75% and my car rate is 3.49%. Average market returns are 7-8%. I'm better off not paying them down early.

 

[slashbinslashbash]

I'm not sure why this is a thread. But I'm glad you're one of the few actually preparing yourself.

Just encouraging the younger members to get started today, and to stick with it for ~5 years, at which point it should have its own momentum.

 

[s0me0nesmind1]

Why?

My mortgage rate is 3.75% and my car rate is 3.49%. Average market returns are 7-8%. I'm better off not paying them down early.

It always depends on your situation, but you are also assuming all of that money is going into your retirement savings instead of paying those off. Also, the market has its ups and downs. We are 3 months into this year and the markets haven't moved an inch.

Paying off those loans is guaranteed savings. The market return is not guaranteed 7-8% 😉

 

[maddogchen]

you should also visit www.bogleheads.org

Its amazing how much money they have in their retirement accounts when people ask to review their investments. Amazing!

 

[slashbinslashbash]

Why?

My mortgage rate is 3.75% and my car rate is 3.49%. Average market returns are 7-8%. I'm better off not paying them down early.

Say you woke up tomorrow and got a notice from the bank that some rich distant relative paid off your house, so you owned it free and clear.

Would you go straight to the bank to take out a 100% mortgage on it and put all that money in the stock market?

 

[Adrenaline]

I have yet to max out my 401k in a single year. I have three kids that take a lot of extra money. I have been contributing for nine years now and it is good. I told my wife to start putting more away for retirement. She said she was fine as she planned on working to 65. I told her that is nice and she will be working for twelve years while I do nothing but sit at home. If I don't retire by 55, I will be at 59 for sure.

If I still have the same job for the next 20 years that would be great.

 

[s0me0nesmind1]

you should also visit www.bogleheads.org

Its amazing how much money they have in their retirement accounts when people ask to review their investments. Amazing!

Indeed. Good advice for the OP.

 

[jlee]

Say you woke up tomorrow and got a notice from the bank that some rich distant relative paid off your house, so you owned it free and clear.

Would you go straight to the bank to take out a 100% mortgage on it and put all that money in the stock market?

Nope, but I'd take the mortgage amount I was previously paying and invest it. If I could take a zero-fee low interest HELOC or something, I would consider it, but closing costs are a bitch.

It always depends on your situation, but you are also assuming all of that money is going into your retirement savings instead of paying those off. Also, the market has its ups and downs. We are 3 months into this year and the markets haven't moved an inch.

Paying off those loans is guaranteed savings. The market return is not guaranteed 7-8% 😉

It's not guaranteed, but that's the average over a ~60 year period. As far as numbers play out, it's pretty safe.

http://www.thesimpledollar.com/where-does-7-come-from-when-it-comes-to-long-term-stock-returns/

For the period 1950 to 2009, if you adjust the S&P 500 for inflation and account for dividends, the average annual return comes out to exactly 7.0%.

There's certainly nothing wrong with paying a house off, but deferring additional investments to prioritize a low-interest mortgage is generally going to cost you money compared to the alternative.

 

[Jeff7]

you should also visit www.bogleheads.org

Its amazing how much money they have in their retirement accounts when people ask to review their investments. Amazing!

There are also plenty of members there who have 6-figure incomes to match.

Some newcomers might find it a bit intimidating at first: There are various threads from business owners, or doctors who are looking for what to do with a $200k/year salary, or someone who got a $50k bonus payout. Then you have some people who are 40 and just recently reached a positive net worth after digging out of debt.
But all of them still receive help in a fairly civil manner, so it's definitely a valuable resource. It's pretty heavily-moderated too, and thou shall always stay on topic. There's not much leeway for chit-chat.