Lowest income at which able to Max 401k and IRA

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fatlever
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Lowest income at which able to Max 401k and IRA

Post by fatlever » Thu Mar 19, 2015 5:27 pm

It seems that 401K Max and IRA Max is given in these parts.

At 125K income (single until maybe next year), with 2K per month mortgage and $700 per month car payments, I am really living paycheck to paycheck when I max Roth 401K, Roth IRA, and HSA with no taxable investing.

I am really burnt out at my job and thinking of switching to something where I will make significantly less (maybe even half). But not being able to take advantage of these spaces really is preventing me from jumping ship from a job/industry that I've grown wearisome of.

At what income is it possible to max 401k and IRA - maybe some of you are doing it or have done it in the past. Maybe I'd have to downsize or rent b/c the mortage takes a huge chunk and I couldn't do after tax ROTH. But it'd be nice to know at what numbers people have been able to max both these accounts.

bigred77
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Re: Lowest income at which able to Max 401k and IRA

Post by bigred77 » Thu Mar 19, 2015 5:41 pm

I would immediately switch from a Roth 401k to a traditional 401k in your situation. Just doing that and then paying off the car note at your present income would free up TONS of cashflow.

if you switch jobs for a paycut you will simply have to reduce your lifestyle, your savings, or a combination of both.

I wouldn't try to give more specific advice because I don't know the details of your spending habits.

I was personally able to max my 401k and Roth IRA (I don't have a HSA) once my salary hit around 75k. My housing costs were similar to yours. Others can/do max their retirement accounts on much less.

FuzzyButtons
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Re: Lowest income at which able to Max 401k and IRA

Post by FuzzyButtons » Thu Mar 19, 2015 5:58 pm

My gross salary is 72k, and as of last year I'm now maxing my 401(k), Traditional IRA, and HSA. I'm single and my expenses are pretty low, so that's fairly close for me. But I'm sure many people are more frugal than me and can do it even lower. I couldn't do it if they were Roth contributions, but that's fine. I expect my tax rate to be lower in retirement.

I'll turn 50 in 2020 and I'd been wondering if I would be able to then take advantage of all the catch-up contributions. But then I realized my mortgage is paid off in 2018, so I'll just send that money over into the retirement funds. :happy

randomguy
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Re: Lowest income at which able to Max 401k and IRA

Post by randomguy » Thu Mar 19, 2015 6:08 pm

fatlever wrote:It seems that 401K Max and IRA Max is given in these parts.

At 125K income (single until maybe next year), with 2K per month mortgage and $700 per month car payments, I am really living paycheck to paycheck when I max Roth 401K, Roth IRA, and HSA with no taxable investing.

I am really burnt out at my job and thinking of switching to something where I will make significantly less (maybe even half). But not being able to take advantage of these spaces really is preventing me from jumping ship from a job/industry that I've grown wearisome of.

At what income is it possible to max 401k and IRA - maybe some of you are doing it or have done it in the past. Maybe I'd have to downsize or rent b/c the mortage takes a huge chunk and I couldn't do after tax ROTH. But it'd be nice to know at what numbers people have been able to max both these accounts.
Only on Bogleheads can saving like 25k+/yr be considered living paycheck to paycheck.

Your goal in life shouldn't be to max tax advantaged space. That is pretty depressing. If you would be happier saving 15k instead of 25k go for it. You will be fine. You will just have to work another x number of years. You can decide if that tradeoff is worth it or not to you.

edawg
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Re: Lowest income at which able to Max 401k and IRA

Post by edawg » Thu Mar 19, 2015 8:56 pm

fatlever, In the last year, I've switched my cashflow over $2K per month favorably (and climbing) by killing car debt, refactoring my living expenses, increasing my charitable donations and pushing up my passive income from both this site and mrmoneymustache.com. All this in same home, with wife and 2 teenagers (though I will be downsizing home in a year to stay on the retirement plan through the college years). You'll have to wade through a few off the wall ideas on how to cut spending to achieve financial independence, but the bitter reality is $2,700 for mortgage and a car is staggering. And the chances are that marrying while at that spending level is not going to help you retire early. If your S.O. sticks with you after you rebalance your spending and have your balance sheet back in order with a plan that's tracking to financial independence, then that's the one.

Respectfully. :beer

bcjb
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Re: Lowest income at which able to Max 401k and IRA

Post by bcjb » Thu Mar 19, 2015 9:08 pm

Other than your car payment, which is quite high, this all looks normal to me, so I'm not sure why you're living paycheck to paycheck. How much do you have available after the rent & car payment? $2500-3000? And what do you spend it on?

In very general terms, I think you should be able to max a trad. 401k and trad/Roth IRA on a salary of $75k or so. But it would be useful to know more about your budget.

stoptothink
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Re: Lowest income at which able to Max 401k and IRA

Post by stoptothink » Thu Mar 19, 2015 9:13 pm

fatlever wrote:
At what income is it possible to max 401k and IRA - maybe some of you are doing it or have done it in the past. Maybe I'd have to downsize or rent b/c the mortage takes a huge chunk and I couldn't do after tax ROTH. But it'd be nice to know at what numbers people have been able to max both these accounts.
During grad school (working full-time while completing MS then PhD) I maxed out my 401k and Roth (even HSA final two years) for 6yrs straight. The most I made in a single year ('07-'12) was $46k. You sound like you are saving plenty (WAY more than your peers at similar salary levels), but if the goal is to max tax-advantaged retirement vehicles, there is no reason you shouldn't be able to do so with a significantly smaller salary(barring you live in NYC or Bay Area). That mortgage and car payment are a huge boon, but it doesn't sound like those are your only expenses that could be cut.

Loandapper
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Re: Lowest income at which able to Max 401k and IRA

Post by Loandapper » Thu Mar 19, 2015 9:21 pm

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achen9291
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Re: Lowest income at which able to Max 401k and IRA

Post by achen9291 » Thu Mar 19, 2015 9:38 pm

Age 23. Income at 61k.. maxing roth IRA and Trad 401k. It's pretty tough because I calculated all of my necessary expenses even living very very frugally, I come out to only 15k net a year. Depending on family situations which could make it less. Eating at mcdonalds dollar menu is considered a treat to me.

Luv2savmoney
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Re: Lowest income at which able to Max 401k and IRA

Post by Luv2savmoney » Thu Mar 19, 2015 9:59 pm

110K

One 401K max
two IRAs max
One HSA max

fatlever
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Re: Lowest income at which able to Max 401k and IRA

Post by fatlever » Thu Mar 19, 2015 10:01 pm

I appreciate all the responses. First time for me sharing my income/expenses. Also, it's really inspiring/motivating how some of you have managed to max at lower income points in your lives. I don't really consider myself a Boglehead. I am a wannabe Boglehead but my spending habits are pretty bad. I found this forum in 2011 and I basically had almost no saving and didn't even know about retirement accounts before then (moved from Europe in 2009).
bcjb wrote:Other than your car payment, which is quite high, this all looks normal to me, so I'm not sure why you're living paycheck to paycheck. How much do you have available after the rent & car payment? $2500-3000? And what do you spend it on?

In very general terms, I think you should be able to max a trad. 401k and trad/Roth IRA on a salary of $75k or so. But it would be useful to know more about your budget.
I say my spending habits are bad but I don't think it's outrageous. I did a rough breakdown and I get ~$4600 in net pay after ROTH, HSA, taxes and such. The car was a mistake - it sucks up a lot. Only put 10% on 260K (15yr) house b/c I was never a saver. But the house is not crazy for my income level - if I had to do over again, probably would do a $140K townhome. Got about $800 in unaccounted - some of which goes to student loans ($250 quarterly - $12K left), clothes, house, etc and I am squirreling away a hundred here and there to max IRA. $400 for groceries is a bit much I know but only eating organic, fresh healthy food, decent wines, chocolates, salmon, nuts, etc.

Mortgage 2000
car 700
cable 150
home/gas 150
elec 50
water 50
cell 90
food 400
car/gas 100
restaurents 100

sum reg expenses 3790
net 4600
unaccounted 810

acejacksingh
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Re: Lowest income at which able to Max 401k and IRA

Post by acejacksingh » Thu Mar 19, 2015 10:11 pm

I max my Trad 401k, HSA, and Roth IRA on a ~$60,000 salary....but don't have any debt.

Live below your means just seems to work :happy

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stemikger
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Re: Lowest income at which able to Max 401k and IRA

Post by stemikger » Thu Mar 19, 2015 10:31 pm

It doesn't have to be all or nothing. In other words, you can save a lot of money without maxing out the 401K and all the other spaces.

I don't like to give my salary, but I make a lot less than you and I paid off my home, paid for my daughter's undergraduate education and max out the 401K. I do not have any taxable investments. It can be done, but again, it doesn't have to be all or nothing.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

DSInvestor
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Re: Lowest income at which able to Max 401k and IRA

Post by DSInvestor » Fri Mar 20, 2015 1:39 am

I agree with bigred77. Consider switching your 401k contributions to Traditional 401k contributions which would increase your take home pay. Use the extra cash flow to attack the car debt. Paying off that car loan will free up 700/month. What is the balance on the car loan?
Wiki

yosef
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Re: Lowest income at which able to Max 401k and IRA

Post by yosef » Fri Mar 20, 2015 7:14 am

I make close to the same as you. Definitely switch to Traditional 401k, and keep the Roth IRA. And yes, that car payment is nuts. If you really feel like it's a mistake, you should sell the car and get into something more affordable. If the payment is $700 a month then I'm guessing it's a car that's going to cost you lots more to own even after it's paid for.

Gropes & Ray
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Re: Lowest income at which able to Max 401k and IRA

Post by Gropes & Ray » Fri Mar 20, 2015 7:26 am

I'll join the chorus for traditional 401k over Roth. You don't want all, or even a majority, of your investments to be roth. You want to fill the 0, 10 and 15% brackets in retirement. Switching from Roth should free up something like $6,000, if my math is correct.

If you switch to a lower salaried job, it's ok to save less as long as your lifestyle similarly restricts. Can you afford the house with the $2k mortgage, or should you downsize? Is the car with a $700 payment too much for someone who makes $65k? Maxing your accounts on a $65k salary would be saving 40% of your income. That is excessive for someone with a mortgage and car payment.

Crow Hunter
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Re: Lowest income at which able to Max 401k and IRA

Post by Crow Hunter » Fri Mar 20, 2015 7:34 am

My wife and I combined make a little more than you (144k IIRC) and we max out 2 401ks and 2 Roths and have for several years (and maxed my 401k and 2 IRAs for years before that).

However, we live in a very LCOL area and are somewhat frugal. Our total annual expenses are less than $60k/yr.

I know that it can be done at a lower income than you have now, but you will probably have to lower other expenses IMHO.

asif408
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Re: Lowest income at which able to Max 401k and IRA

Post by asif408 » Fri Mar 20, 2015 7:47 am

My spouse and I make less than 50K combined, and there is no way we could even come close to maxing out our tax advantaged space (it's more than what we make combined). We maxed out one Roth, an HSA, and then made contributions to her Roth and my 457 (neither one close to the maximum). Those contributions represented about 1/3 of our income. Figure out what lifestyle you want and what you need to save to be able to afford it when you no longer work. We have a relatively simple, low demand lifestyle (don't travel much, no fancy cars, don't do fine dining much, no expensive hobbies) so we won't need much in retirement. Others here "need" $200,000/year. YMMV.

Realize that Bogleheads don't represent the general population: they are typically high income earners and prodigious savers. Save early, save often, and save what you can, but don't make your life miserable in the process. There is a happy medium: you'll have to find it. And don't work for the money. Find a job or career that you look forward to going to (or at least don't dislike) and pays enough to support the lifestyle you want. I used to be in a career that paid a lot more but left because I wasn't happy. Much happier now with a lower income and simpler life.

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Kosmo
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Re: Lowest income at which able to Max 401k and IRA

Post by Kosmo » Fri Mar 20, 2015 7:49 am

fatlever wrote:sum reg expenses 3790
net 4600
unaccounted 810
Having 17% of your net income going towards unaccounted for spending probably means that you're actually leaking more money than you think in unnecessary spending. I think there's a lot of room for spending reductions so you don't feel stretched to the max while filling up your tax advantaged accounts.

Disclosure: I max HSA, but do not max 401k or IRA.

member
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Re: Lowest income at which able to Max 401k and IRA

Post by member » Fri Mar 20, 2015 7:52 am

Do you have pension? If yes, you don't have to because it's 15% saving already.

JJP
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Re: Lowest income at which able to Max 401k and IRA

Post by JJP » Fri Mar 20, 2015 8:00 am

Filled my Roth IRA and 401k last year on $55k. Age 25, extremely low expenses.

nolesrule
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Re: Lowest income at which able to Max 401k and IRA

Post by nolesrule » Fri Mar 20, 2015 8:02 am

fatlever wrote:
Mortgage 2000
car 700
cable 150
home/gas 150
elec 50
water 50
cell 90
food 400
car/gas 100
restaurents 100

sum reg expenses 3790
net 4600
unaccounted 810
Those are your monthly expenses. What about the less frequent required expenses that tend to pop up quarterly, semi-annually or annually?

bcjb
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Re: Lowest income at which able to Max 401k and IRA

Post by bcjb » Fri Mar 20, 2015 10:32 am

fatlever wrote:I appreciate all the responses. First time for me sharing my income/expenses. Also, it's really inspiring/motivating how some of you have managed to max at lower income points in your lives. I don't really consider myself a Boglehead. I am a wannabe Boglehead but my spending habits are pretty bad. I found this forum in 2011 and I basically had almost no saving and didn't even know about retirement accounts before then (moved from Europe in 2009).
bcjb wrote:Other than your car payment, which is quite high, this all looks normal to me, so I'm not sure why you're living paycheck to paycheck. How much do you have available after the rent & car payment? $2500-3000? And what do you spend it on?

In very general terms, I think you should be able to max a trad. 401k and trad/Roth IRA on a salary of $75k or so. But it would be useful to know more about your budget.
I say my spending habits are bad but I don't think it's outrageous. I did a rough breakdown and I get ~$4600 in net pay after ROTH, HSA, taxes and such. The car was a mistake - it sucks up a lot. Only put 10% on 260K (15yr) house b/c I was never a saver. But the house is not crazy for my income level - if I had to do over again, probably would do a $140K townhome. Got about $800 in unaccounted - some of which goes to student loans ($250 quarterly - $12K left), clothes, house, etc and I am squirreling away a hundred here and there to max IRA. $400 for groceries is a bit much I know but only eating organic, fresh healthy food, decent wines, chocolates, salmon, nuts, etc.

Mortgage 2000
car 700
cable 150
home/gas 150
elec 50
water 50
cell 90
food 400
car/gas 100
restaurents 100

sum reg expenses 3790
net 4600
unaccounted 810
Thanks for your reply. The only problems I see are the car payment and the unaccounted $810/month. Yes, you could probably save on the cable bill, the organic food, etc, but you also want to live a little. Try to track your expenses a bit more carefully in the next couple of months; if the unaccounted expenses turn out to be frivolous, you can eliminate those if/when you change jobs.

hyla
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Re: Lowest income at which able to Max 401k and IRA

Post by hyla » Fri Mar 20, 2015 12:36 pm

Maxed an IRA and saved 4k in taxable this year on a 25k income. 401k isn't relevant for me cause I don't have one.

Main things that have helped me keep spending low are living with roommates to keep monthly housing costs under $450, and always buying cars with cash (small, fuel efficient used cars). Also, as long as your saving a good percentage of your income, don't stress if you can't max everything. I've only been able to max my IRA 2 of the 5 years I've had it open. It's still growing steadily, and I'm pretty happy with it given my age and income.

If you're burnt out at work, it's probably worth switching careers. Half your current income is plenty to live comfortably on and save. You'll just need to start thinking of finding money to save from cutting expenses rather than increasing your income. Downsizing the car and house are the expenses that immediately jump out - you said yourself that the car was a mistake and you wish you'd bought a smaller townhome. If you switch to a lower paying field, there may also be less pressure to keep up with coworkers on big houses and cars.

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vitaflo
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Re: Lowest income at which able to Max 401k and IRA

Post by vitaflo » Fri Mar 20, 2015 1:01 pm

It's the car payment, it's eating into your bottom line. Get rid of that and you will be breathing a whole lot easier.

retiredjg
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Re: Lowest income at which able to Max 401k and IRA

Post by retiredjg » Fri Mar 20, 2015 1:27 pm

I agree with the people who are saying you should be filling a traditional 401k, not a Roth 401k. This will free up about $5k a year.

I also believe that you don't have to fill both a 401k and an IRA completely every year. It is important to save, but everything does not have to be maxed out every year. If you need a little slack, you should give yourself some.

fatlever
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Re: Lowest income at which able to Max 401k and IRA

Post by fatlever » Fri Mar 20, 2015 11:47 pm

Thanks for all the advice and I think more importantly how ppl are doing so much at different points in their lives and at different income levels. I am looking more carefully at my expenses, planning to cut back and thinking about downsizing still debating the Roth 401K.

The reason for the Roth 401k was:

1. I also have a Pension at work plus 401K matching so around 15% Tax Deferred - not vested until I stay a few more years

2. I tend to find that I use up anything not in retirement accounts. I've tried taxable and I can't "Stay the course" with anything where I am not penalized. Remember there was big dip in around August 2011, I took everything out and took my losses. 401k, IRA, I go meh, it's there for 25 years, this is just a blip.

3. Maybe taking the leap next year and she is 15 years younger so when she's in her peak earning years I'll be starting retirement so regardless we'd be in 25% bracket

Car has 20 months left.

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BrandonBogle
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Re: Lowest income at which able to Max 401k and IRA

Post by BrandonBogle » Sat Mar 21, 2015 12:08 am

I have to thank mom for this.

I finished undergrad right during the dot com crash. Couldn't find a job with my BS in Comp Sci and I knew I wanted to get a Masters anyway. Mom told me to transfer to being a distance student and move back in at home. Landed a job in less than a week, but in retail instead of IT. Promoted after a year and finally, at $36k/year, maxed a Traditional 401k and Roth IRA. Continued that tradition ever since and this year actually cut back as other posters said that maxing out shouldn't be the end goal and I'm adjusting my life accordingly.

That said, I wouldn't have been able to max out without living at mom's house for two and a half years. Btw, as soon as I finished my Masters, I landed my current job and love it!

Gropes & Ray
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Re: Lowest income at which able to Max 401k and IRA

Post by Gropes & Ray » Sat Mar 21, 2015 6:58 am

fatlever wrote:The reason for the Roth 401k was:

1. I also have a Pension at work plus 401K matching so around 15% Tax Deferred - not vested until I stay a few more years

2. I tend to find that I use up anything not in retirement accounts. I've tried taxable and I can't "Stay the course" with anything where I am not penalized. Remember there was big dip in around August 2011, I took everything out and took my losses. 401k, IRA, I go meh, it's there for 25 years, this is just a blip.

3. Maybe taking the leap next year and she is 15 years younger so when she's in her peak earning years I'll be starting retirement so regardless we'd be in 25% bracket
You understand the difference between a roth and traditional 401k? You can't access either one until you're close to 60. The traditional 401k is tax free investments with taxed withdrawals. Roth is post-tax investment, with tax free withdrawals. You probably knew that, but something in your post made me uncertain. If you're cash strapped now, but won't be when you retire, you may as well wait to pay the taxes. Also, your wife will eventually retire too.

retiredjg
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Re: Lowest income at which able to Max 401k and IRA

Post by retiredjg » Sat Mar 21, 2015 7:08 am

fatlever wrote:2. I tend to find that I use up anything not in retirement accounts.
Give some consideration to this statement. You may be living from paycheck to paycheck because of your own behavior. It may have nothing to do with how much you are saving for retirement.

Even though I think you should be using traditional 401k instead of Roth, if you feel you would just spend the savings then Roth is probably a better choice for you.

In the times you do have some extra money in taxable, don't invest it - you already know what happens when you do that. Instead, put more money to the car payment or to the mortgage. Or buy CDs - you probably would not mess with the CDs.

cherijoh
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Re: Lowest income at which able to Max 401k and IRA

Post by cherijoh » Sat Mar 21, 2015 8:15 am

fatlever wrote:It seems that 401K Max and IRA Max is given in these parts.

At 125K income (single until maybe next year), with 2K per month mortgage and $700 per month car payments, I am really living paycheck to paycheck when I max Roth 401K, Roth IRA, and HSA with no taxable investing.

I am really burnt out at my job and thinking of switching to something where I will make significantly less (maybe even half). But not being able to take advantage of these spaces really is preventing me from jumping ship from a job/industry that I've grown wearisome of.

At what income is it possible to max 401k and IRA - maybe some of you are doing it or have done it in the past. Maybe I'd have to downsize or rent b/c the mortage takes a huge chunk and I couldn't do after tax ROTH. But it'd be nice to know at what numbers people have been able to max both these accounts.
It looks like you are either near the bottom of the 28% federal marginal tax bracket or potentially the top of the 25% bracket - for 2015 the break point is $90,750 in taxable income for single taxpayers. You should definitely be in a traditional 401k at this income level. This would free up $4500 in cash flow per year ( assuming 25 % * $18K) plus whatever state taxes you would defer. I think you will find that very few Bogleheads are fully funding a ROTH 401-k.

Use the newly-freed-up cash flow towards paying off the car loan. I would also suggest creating a serious rainy day fund to allow you some leeway to quit your current job. Hopefully with a clear goal in mind, you will find it easier to save rather than spend the money. I would suggest automatic withdrawal from your checking account (on payday so you don't see the money) to a high-yield savings account. You should also start tracking spending and cut out as much fat as possible to see how much you really need to live on. The freed-up money should be also used to pay off the car loan or go into the rainy day fund.

This budget exercise will tell you whether you can afford the house you have if you switch jobs. You could also explore refinancing to a 30-yr mortgage. But it would be wise to do this while you are still in your current higher-paying job. However, if you are planning to get married shortly you need to evaluate whether you would actually stay longer term in the house. If not renting might be the best option.

Only you can decide how to prioritize your goals - you just can't do it all: spend what you want, fully fund retirement, keep your house, AND take a significant pay cut. What you don't want to do is quit your job before you get your financial ducks in a row.

cherijoh
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Re: Lowest income at which able to Max 401k and IRA

Post by cherijoh » Sat Mar 21, 2015 8:28 am

fatlever wrote:Thanks for all the advice and I think more importantly how ppl are doing so much at different points in their lives and at different income levels. I am looking more carefully at my expenses, planning to cut back and thinking about downsizing still debating the Roth 401K.

The reason for the Roth 401k was:

1. I also have a Pension at work plus 401K matching so around 15% Tax Deferred - not vested until I stay a few more years <-- If you are burned out, then I would totally discount your pension until you are vested. It doesn't sound like you will last that long.

2. I tend to find that I use up anything not in retirement accounts. I've tried taxable and I can't "Stay the course" with anything where I am not penalized. Remember there was big dip in around August 2011, I took everything out and took my losses. 401k, IRA, I go meh, it's there for 25 years, this is just a blip.

3. Maybe taking the leap next year and she is 15 years younger so when she's in her peak earning years I'll be starting retirement so regardless we'd be in 25% bracket <--you're not even engaged, so I wouldn't count those chickens yet. Plus, you only need to start taking RMDs at 70.5; your future wife would be 55 and very likely want to retire early if her husband was retired.

Car has 20 months left.

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