Saving For Retirement as a Millennial

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Topic Author
misscourtneyk
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Location: The Great South

Saving For Retirement as a Millennial

Post by misscourtneyk » Tue Apr 03, 2018 10:15 am

Hi Bogleheads,
First want to say thanks for the wealth of knowledge on this forum; I always learn something when I come here! There is a lot of conflicting information out there in the world and the picture painted by the news outlets is pretty bleak when it comes to thinking about retirement savings for people in my age group. It's a lot of "doom and gloom" i.e. perception that we will have to work forever and won't be able to retire like our parents.

I feel that, thanks to this forum, I am doing better than most of my peers but considering most of them are doing nothing, that doesn't give me much confidence that I'm on track for my goals. Would appreciate your feedback.

Emergency funds: 9 months of bare bones living expenses
Debt: Mortgage, $65,000 remaining, 3.375 interest rate
Tax Filing Status: Single
Tax Rate: 15% Federal
State: Alabama
Age: 27
Salary: $66,000 (recently got this raise, the past three years I have been making between $42-52K).

Assets
Vanguard Employer 401k (Roth):
- $26K, I recently raised my contribution level to 18% since I got this promotion;
- invested in Vanguard 2055 Target Date Fund
- company match 50% up to first 6% of salary

Fidelity Roth IRA:
- $12K, I opened this two years ago and max it out
- invested in Fidelity FSTVX (Total Stock Market)

Total Retirement Savings: $38,000

Questions:
1) Am I behind the curve? I graduated from college late and only started working full time in 2015 so I am fearful that I have gotten a late start. I read somewhere that you should try to have 1x salary saved for retirement by 30 so that is something I am striving for but not sure how good of a benchmark that is in the Boglehead world.

2) I am currently not paying down my mortgage further since the interest rate is so low and am focusing on increasing contributions to my 401K. Is this a good idea?
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

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Tamarind
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Re: Saving For Retirement as a Millennial

Post by Tamarind » Tue Apr 03, 2018 10:25 am

Hello fellow millennial! I'm just 5 years older and I can tell you the important thing, which you are already doing, is to start saving as soon as you start working and just don't stop.

You are off to a great start, actually. I think you have the right idea re your 401k. Keep increasing your contribution amount until you can max it out too (a little at a time as you get raises is just fine).

Once you get out of the 12% bracket (you might be already), you may benefit from switching to traditional 401k.

Your mortgage amount is nice and low and your rate is low too. I don't think you need to try to pay it off faster yet. Maybe after you can reliably max all of your tax-advantaged space.

ThriftyPhD
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Re: Saving For Retirement as a Millennial

Post by ThriftyPhD » Tue Apr 03, 2018 10:30 am

1) No, you're not behind the curve. You're saving 21% (18% contribution + 3% match) to your 401k, and 8.3% (5500/66000) to your Roth IRA. That's just under 30%, not counting your principal payments to your mortgage. You also have a very healthy emergency fund. Your mortgage amount is very reasonable for your salary. I think you're on a good path and are saving at a high rate for your age, starting earlier than most.

2) I would do the same as you, the interest rate is low enough that I would focus more on savings than paying down the mortgage. In fact my rate is higher than yours and I'm not paying it down more than the standard payment.

Noting that you're putting both 401k and IRA into Roth, do you think your current salary level will increase substantially (expecting big promotions), or is your career trajectory going to be more or less at this level? Reason I ask is because putting a portion of your 401k money as pre-tax would let you save more, and in retirement there will be opportunity to fill the 0% bracket. Retiring at 100% Roth means you paid more taxes than you needed to. However, if you see a big promotion and salary increase in the near future, putting in Roth dollars now and pre-tax when you make more isn't a bad idea. Just something to consider.

chevca
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Re: Saving For Retirement as a Millennial

Post by chevca » Tue Apr 03, 2018 10:36 am

You're doing great!

Wish I had been in that good a spot when I was 27. I didn't even think of saving for retirement until I was almost 40. Keep doing what you're doing and you'll be fine.

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Traveller
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Re: Saving For Retirement as a Millennial

Post by Traveller » Tue Apr 03, 2018 10:39 am

It sounds to me like you are off to a great start - You're in your 20's, have more saved already than many twice your age, your career seems to be progressing, and you are thinking about retirement savings already. Congrats!

To answer your first question, I wouldnt worry about the "1x by 30" benchmark. Savings rate is the most important thing, and by my calculations you are saving a lot (18% of 66k into the 401k, plus $5.5k into the roth is just over $17k, or 26% of your gross income!!!). I am much older than you and I started saving for retirement much later than you and I am now in a very good position, so you are doing great. If you keep doing what you are doing, and split all future raises or bonuses (half to increase savings rate and half to fun/living expenses) then you should do very well indeed.

As for your second question - Yes. That sounds like a very good idea.

Topic Author
misscourtneyk
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Re: Saving For Retirement as a Millennial

Post by misscourtneyk » Tue Apr 03, 2018 10:43 am

ThriftyPhD wrote:
Tue Apr 03, 2018 10:30 am
Noting that you're putting both 401k and IRA into Roth, do you think your current salary level will increase substantially (expecting big promotions), or is your career trajectory going to be more or less at this level? Reason I ask is because putting a portion of your 401k money as pre-tax would let you save more, and in retirement there will be opportunity to fill the 0% bracket. Retiring at 100% Roth means you paid more taxes than you needed to. However, if you see a big promotion and salary increase in the near future, putting in Roth dollars now and pre-tax when you make more isn't a bad idea. Just something to consider.
I am expecting larger promotions in the future...I work in an industry where average salaries typically reach $100,000+ by mid-career. However, I understand the idea that perhaps I should introduce some traditional 401K contributions not too far in the future. I actually just started a new job so I have the chance to set up a new 401K as we speak: would you recommend I go traditional with that? I'm planning to roll my old ROTH 401K into my Roth IRA. If not, when should I make the switch to contributing pre tax money?

Really appreciate you bringing that up.
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

Arinbjorn
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Re: Saving For Retirement as a Millennial

Post by Arinbjorn » Tue Apr 03, 2018 10:45 am

I'm 30 years old, and in a similiar situation. I think you're doing fine, personally. Your savings rate is great for a younger person, and I think maintaining that rate will be a key thing for your future.

If you can up your savings rate each time you get a raise (if you get a 6 percent raise, maybe up your savings rate 3 or 4 percent), that'll help over time. For now, your baseline savings rate is quite good - again, especially for our age bracket.

The mortgage principal is a personal preference thing. Your rate is very low, which means the market likely will outperform it, especially over a long time horizon. However, it's also a guaranteed savings, like a reverse-bond. So that isn't bad either. If you like a safer method, paying a bit of extra principal, especially in the beginning of a mortgage's amortization process, helps pay it off sooner - the freedom of no mortgage payment sooner is quite a big deal to some people. This is perhaps skewed to emotional safety vs total return, and depends on your tolerance for risk.

For me - I kind of split the middle. I pay a little extra on my mortgage, and I pay into my 401k and Roth IRA. I feel like that's a good way for me to deal with the dilemma of what to do, and not feel any regret about my choices. My total mortgage payment is just below $500/month. If I pay an extra $150 to the principal of the loan, I have paid (slightly more than) an extra mortgage payment's principal. In other words, the amount of actual loan being repaid is slightly more than double, for only $150 extra directly to principal. My 30 year loan turns into a 15 year loan this way, I save money on interest (my rate is 4%), and I feed my 401k and Roth IRA.

Being young, my tolerance for risk in my 401k and Roth IRA is high. So I tell myself the extra principal is a safe thing for me to do to hedge myself a bit. I derive more satisfaction using a split like this than being 100% in either paying off the mortgage or investing in stock index.

The last thing I would suggest, from one younger home owner to another, is to set aside like $50/month into a high interest savings account like Ally solely for unknown future House repair expenses. There's always something that will need doing, and I like having a mini-emergency-fund for house stuff. The reward is not stressing when a major repair becomes unavoidable, like a new furnace.

Listen to the older folks with more wisdom, but I hope our situations are kind of apples-to-apples, and perhaps that will help some!

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marti038
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Re: Saving For Retirement as a Millennial

Post by marti038 » Tue Apr 03, 2018 10:48 am

misscourtneyk wrote:
Tue Apr 03, 2018 10:15 am
I am fearful that I have gotten a late start.
I think at some point, everyone wishes they would have started earlier.

I started saving about the same time you did, making less money, probably saving less than you are, and a little over decade later things are going way better than I could have expected. I'm 36 and last year was the first year my money made more money than I did. Granted, not all years will be like 2017, but it was a great feeling.

Just stay the course and one day you'll see the money you've saved working really hard for you. You're doing great. If you don't do anything else, just keep saving.

Personally, at 3.375%, I wouldn't worry too much about the mortgage. However, if you really hate debt and it's of psychological benefit to you, it wouldn't hurt anything to pay it down. Personally, liquidity is more comforting to me than the mortgage is concerning, but this is personal to everyone.

Awesome job.

Arinbjorn
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Re: Saving For Retirement as a Millennial

Post by Arinbjorn » Tue Apr 03, 2018 10:55 am

Your Roth 401k vs Traditional 401k question - I too did a Roth 401k when I was making less money overall, and have switched to Traditional 401k now, making approx 65/70k in a LCOL area.

My take on it, is if you make a modest income, pay the taxes when they are low. As you make more money, it feels safer (to me) to use the traditional 401k as tax write off, and ultimately delay the taxes. My Roth 401k is rolled into my Roth IRA now. I'm glad to have the advantages of both pre tax and post tax savings vehicles.

It's hard to predict if you'll make more money when retired vs when you are working, in my view, if you are a young Boglehead. Yeah, I hope I have enough money invested when I'm retiring that my "income" doesn't really change, but a lot can happen in 30+ years. So I use a Traditional 401k and a Roth IRA to sort of hedge in either direction. Perhaps less optimal efficiency, but, I feel okay losing some tax efficiency for the safety of both savings vehicles.

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rhinopylon
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Re: Saving For Retirement as a Millennial

Post by rhinopylon » Tue Apr 03, 2018 10:57 am

I'm a slightly older millennial and made similar to what you're making at the same point in my career. Your saving rate is great and higher than mine was at the same time. I agree you shouldn't be paying extra on your mortgage. Pour all that into your 401k and reduce your taxes even more. You should be able to max your 401k and roth out completely. You're also at the age where you can make a HUGE difference in your future by maxing out HSA contributions. Put the riskiest portion of your allocation into your HSA and forget it.

You're doing great and are so much farther ahead than what I was at your age! Keep up the good work and work on increasing your income in the future.

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Pajamas
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Re: Saving For Retirement as a Millennial

Post by Pajamas » Tue Apr 03, 2018 11:00 am

misscourtneyk wrote:
Tue Apr 03, 2018 10:15 am
There is a lot of conflicting information out there in the world and the picture painted by the news outlets is pretty bleak when it comes to thinking about retirement savings for people in my age group. It's a lot of "doom and gloom" i.e. perception that we will have to work forever and won't be able to retire like our parents.

I feel that, thanks to this forum, I am doing better than most of my peers but considering most of them are doing nothing, that doesn't give me much confidence that I'm on track for my goals.
I was in a very similar situation at your age financially and career-wise and everything worked out well. Ignore the current news as you have forty years until the traditional retirement age. There will be ups and downs in the economy and in the markets and there will be periods of war and relative peace in the world. There will even be ups and downs with the predictions older generations make for your own generation, but you are an individual and not an age group. Things will happen in your lifetime that you can't imagine now. You are doing what you need to do financially and are well ahead of the average based on many factors:

You have a college degree.
You have embarked on a career with good opportunities for future growth.
Your income is already above the median household income even though you are not thirty.
You have purchased a home.
You have emergency and retirement savings and are not struggling with debt. You have a positive net worth.
You have a long-term plan for financial security.

I don't have any specific suggestions for you except to continue what you are doing, aim for financial independence, don't let your lifestyle inflate with your salary increases, and focus on advancing your career now (such as education or finding better opportunities to gain experience) while you have decades to benefit from it.

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Darth Xanadu
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Re: Saving For Retirement as a Millennial

Post by Darth Xanadu » Tue Apr 03, 2018 11:03 am

Arinbjorn wrote:
Tue Apr 03, 2018 10:55 am

My take on it, is if you make a modest income, pay the taxes when they are low. As you make more money, it feels safer (to me) to use the traditional 401k as tax write off, and ultimately delay the taxes. My Roth 401k is rolled into my Roth IRA now. I'm glad to have the advantages of both pre tax and post tax savings vehicles.
This is indeed a nice thing to have for down the road.

OP, you might be able to remain in the 12% bracket if you switch to Traditional 401k option. Just a thought.

magicrat
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Re: Saving For Retirement as a Millennial

Post by magicrat » Tue Apr 03, 2018 11:03 am

Great job OP, you're off to a great start. Living below your means will be a key for you as your compensation increases. If you aren't budgeting / tracking your spending, I suggest starting now and making it a habit. This will help you really understand where your money is going, and decide what is really worth it or not. Once you get to the $100k+ level, you can then decide to live on half of that (or whatever is right for you) and save the rest. This will create fantastic options for your future (early retirement, staying home with a child, taking on a passion job later in your career, etc).

I'm 37 and make probably 3x what I made at your age. I spend probably 1.5x what I spent at 27. Saving the rest and having a good bogeheads investment strategy has helped me build a nest egg well ahead of my peers and is allowing me significant flexibility in my life and a complete lack of financial stress.

Kudos on what you have done so far, keep it up.

stimulacra
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Re: Saving For Retirement as a Millennial

Post by stimulacra » Tue Apr 03, 2018 11:09 am

You're doing great. Earlier is always better but one's 20's should be devoted to fun and exploratory growth as well… looks like you'll be fine.

Topic Author
misscourtneyk
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Re: Saving For Retirement as a Millennial

Post by misscourtneyk » Tue Apr 03, 2018 12:24 pm

Darth Xanadu wrote:
Tue Apr 03, 2018 11:03 am
Arinbjorn wrote:
Tue Apr 03, 2018 10:55 am

My take on it, is if you make a modest income, pay the taxes when they are low. As you make more money, it feels safer (to me) to use the traditional 401k as tax write off, and ultimately delay the taxes. My Roth 401k is rolled into my Roth IRA now. I'm glad to have the advantages of both pre tax and post tax savings vehicles.
This is indeed a nice thing to have for down the road.

OP, you might be able to remain in the 12% bracket if you switch to Traditional 401k option. Just a thought.
Good point: I hadn't considered switching to a Traditional 401K, but due to all the advice in this thread I think I am going to set up my new account with my new employer as a traditional 401K. Thank you!!
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

Topic Author
misscourtneyk
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Re: Saving For Retirement as a Millennial

Post by misscourtneyk » Tue Apr 03, 2018 12:26 pm

marti038 wrote:
Tue Apr 03, 2018 10:48 am
misscourtneyk wrote:
Tue Apr 03, 2018 10:15 am
I am fearful that I have gotten a late start.
I think at some point, everyone wishes they would have started earlier.

I started saving about the same time you did, making less money, probably saving less than you are, and a little over decade later things are going way better than I could have expected. I'm 36 and last year was the first year my money made more money than I did. Granted, not all years will be like 2017, but it was a great feeling.
That's great to hear! Also, Roll Tide (I'm in Huntsville). :beer
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

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Svensk Anga
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Re: Saving For Retirement as a Millennial

Post by Svensk Anga » Tue Apr 03, 2018 12:30 pm

OP, you said you were in the 15% Federal tax bracket, but that was last year. With the recent raise, I suspect you are well into the 22% bracket. I suggest you estimate your 2018 taxes now while there is time to make adjustments. I agree with the other posters who suggest some traditional 401k contributions. You should diversify your retirement tax exposure. The employer match is pre-tax so that gives you some, but if the tax code looks anything like the current when you get to retirement, you should be able to get funds out at a good bit less than 22%, some even at 0%. Imagine that Congress scales back the income tax 30 years from now and implements a value-added tax. (These are common in Europe and are favored policy by economists, not that they have much political clout.) You could pay high income taxes your whole career, then pay high VAT in retirement, when income taxes are very low.

It looks like you could get down to the top of the 12% bracket with your savings rate. That would be $38,700 taxable income. With $12,000 standard deduction, that would mean $50,700 AGI. Your 18% Roth 401k deferral rate could be 23% at the same take-home pay. (18%/(1-22%)). On $66,000, that's $15,200 and gets you very close to the 12%/22% bracket boundary. If you pay employer health insurance premiums pre-tax, that could give you some room to keep a bit of Roth 401k contributions going and still hit 12%.

The general advice is pre-tax when working marginal rate is higher than expected retirement marginal rate, and Roth if lower. It is of course very hard to make a valid prediction of that marginal rate in retirement 30+ years out. If you can get to $100,000 salary eventually, that is about on the border of 22/24% in the current tax code and 25/28% if the current code sunsets per the bill as passed. Rates in retirement should be similar to or smaller than your working tax rate. (If rates in retirement are higher, either Congress changed the game or you worked too long.) If at 24% now or 28% sunset, you should likely be contributing pre-tax. At 22% it is a bit uncertain. The earlier you want to retire, the lower rate you should expect.

mcraepat9
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Re: Saving For Retirement as a Millennial

Post by mcraepat9 » Tue Apr 03, 2018 12:32 pm

rhinopylon wrote:
Tue Apr 03, 2018 10:57 am
I'm a slightly older millennial and made similar to what you're making at the same point in my career. Your saving rate is great and higher than mine was at the same time. I agree you shouldn't be paying extra on your mortgage. Pour all that into your 401k and reduce your taxes even more. You should be able to max your 401k and roth out completely. You're also at the age where you can make a HUGE difference in your future by maxing out HSA contributions. Put the riskiest portion of your allocation into your HSA and forget it.

You're doing great and are so much farther ahead than what I was at your age! Keep up the good work and work on increasing your income in the future.
Be careful with the HSA piece - as you may know, Alabama treats HSAs differently from most other states. In light of that treatment, if you go down the HSA path, you likely want to be mindful of what investments you have in there and focus on ones that are not subject to state income tax in AL (Treasurys, for example).
Amateur investors are not cool-headed logicians.

Glockenspiel
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Re: Saving For Retirement as a Millennial

Post by Glockenspiel » Tue Apr 03, 2018 12:40 pm

You're doing a great job for only saving since 2015. Sounds like you're definitely on the right path and have taken many steps that I hadn't thought about at age 27. Don't worry about being "behind the curve", because you're not. I wouldn't worry about "benchmarks" until you're 40 or so.

As you keep getting raises, try increase your savings rate until you max out your 401k, and try to keep living like you currently are. As your salary increases, also consider changing your Roth 401k contributions to regular 401k contributions instead. It will keep your taxable income lower and qualify you to keep making Roth IRA contributions (if you get married someday).

I'm 33 and have doubled my salary in the 10 years since I started working. Just keep working hard and doing the right thing and you will be on track to retire a little early, if you want.

Topic Author
misscourtneyk
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Re: Saving For Retirement as a Millennial

Post by misscourtneyk » Tue Apr 03, 2018 12:44 pm

Svensk Anga wrote:
Tue Apr 03, 2018 12:30 pm
OP, you said you were in the 15% Federal tax bracket, but that was last year. With the recent raise, I suspect you are well into the 22% bracket. I suggest you estimate your 2018 taxes now while there is time to make adjustments. I agree with the other posters who suggest some traditional 401k contributions. You should diversify your retirement tax exposure. The employer match is pre-tax so that gives you some, but if the tax code looks anything like the current when you get to retirement, you should be able to get funds out at a good bit less than 22%, some even at 0%. Imagine that Congress scales back the income tax 30 years from now and implements a value-added tax. (These are common in Europe and are favored policy by economists, not that they have much political clout.) You could pay high income taxes your whole career, then pay high VAT in retirement, when income taxes are very low.
Yikes you're probably right that I might be in a higher tax bracket now. Definitely going to go calculate that and implement some traditional 401K contributions starting now thanks to this advice.

Thank you to everyone who responded so far, I really appreciate the positive feedback and encouragement. Staying the course is hard particularly when almost everyone I know or went to undergrad/grad school with are prioritizing 'luxury' purchases in their 20s (new cars, expensive travel, mini-McMansions) over starting an IRA or saving above the basic company match. I get a lot of crap for being "so cheap" in order to save a lot, but I don't feel like I deprive myself. I do save a lot and choose not to spend in other areas, but I still feel like I enjoy myself. I go out to eat on the weekends, I travel a few times a year with friends (so we can split the costs), and generally can get what I want for myself. But it can be a lonely road so this forum has been so helpful to me in making those choices.
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

KlangFool
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Re: Saving For Retirement as a Millennial

Post by KlangFool » Tue Apr 03, 2018 12:52 pm

OP,

1) Max up your Trad. 401K. Put your tax savings into the Roth IRA and the taxable account.

2) What is your current annual expense?

3) Saving rate in term of current annual expense is a lot more useful than saving rate as per income.

4) Save 1 year of annual expense every year. Then, you will be fine. You will reach Financial Independent in about 25 years with 0% real return. Save much more than that is not very productive. You should live your life too.

KlangFool

HIinvestor
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Re: Saving For Retirement as a Millennial

Post by HIinvestor » Tue Apr 03, 2018 12:57 pm

Our S is 30. So far, he has resisted the urges to buy a nice new car as he drove one used car and now a 2nd used car until they stop working. Both cars were/are “hand me downs,” but very reliable vehicles.

Like you he has prioritized savings and has built up an emergency and retirement fund. Unlike you, he hadn’t yet purchased real estate, though he’s been considering it while saving all he can. He’s still trying to decide where he wants to settle and set down roots before he buys.

Congratulations again! Your savings will give you options going forward and allow you to sleep well at night.

Don’t bother comparing yourself with others—you will grow vain by how much you’ve exceeded them or jealous by how much they exceed you. There will always be others ahead and behind. Find YOUR good place and compete against yourself.

Topic Author
misscourtneyk
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Re: Saving For Retirement as a Millennial

Post by misscourtneyk » Tue Apr 03, 2018 1:00 pm

KlangFool wrote:
Tue Apr 03, 2018 12:52 pm
OP,

1) Max up your Trad. 401K. Put your tax savings into the Roth IRA and the taxable account.

2) What is your current annual expense?

3) Saving rate in term of current annual expense is a lot more useful than saving rate as per income.

4) Save 1 year of annual expense every year. Then, you will be fine. You will reach Financial Independent in about 25 years with 0% real return. Save much more than that is not very productive. You should live your life too.

KlangFool
I currently spend about about $25K a year. This sounds low I realize, but I live in a very LCOL area, my mortgage is less than $500 a month, and I have no debt. So I live quite comfortably on that $25K a year, including traveling. But I'm also single with no kids so that helps :D
Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.

KlangFool
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Re: Saving For Retirement as a Millennial

Post by KlangFool » Tue Apr 03, 2018 1:08 pm

misscourtneyk wrote:
Tue Apr 03, 2018 1:00 pm
KlangFool wrote:
Tue Apr 03, 2018 12:52 pm
OP,

1) Max up your Trad. 401K. Put your tax savings into the Roth IRA and the taxable account.

2) What is your current annual expense?

3) Saving rate in term of current annual expense is a lot more useful than saving rate as per income.

4) Save 1 year of annual expense every year. Then, you will be fine. You will reach Financial Independent in about 25 years with 0% real return. Save much more than that is not very productive. You should live your life too.

KlangFool
I currently spend about about $25K a year. This sounds low I realize, but I live in a very LCOL area, my mortgage is less than $500 a month, and I have no debt. So I live quite comfortably on that $25K a year, including traveling. But I'm also single with no kids so that helps :D
So, max up your Trad. 401K = 18.5K. Roth IRA = 5.5K. Plus employer match. You had saved enough. Spend the rest.

KlangFool

Lrt12
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Re: Saving For Retirement as a Millennial

Post by Lrt12 » Tue Apr 03, 2018 1:13 pm

mcraepat9 wrote:
Tue Apr 03, 2018 12:32 pm
rhinopylon wrote:
Tue Apr 03, 2018 10:57 am
I'm a slightly older millennial and made similar to what you're making at the same point in my career. Your saving rate is great and higher than mine was at the same time. I agree you shouldn't be paying extra on your mortgage. Pour all that into your 401k and reduce your taxes even more. You should be able to max your 401k and roth out completely. You're also at the age where you can make a HUGE difference in your future by maxing out HSA contributions. Put the riskiest portion of your allocation into your HSA and forget it.

You're doing great and are so much farther ahead than what I was at your age! Keep up the good work and work on increasing your income in the future.
Be careful with the HSA piece - as you may know, Alabama treats HSAs differently from most other states. In light of that treatment, if you go down the HSA path, you likely want to be mindful of what investments you have in there and focus on ones that are not subject to state income tax in AL (Treasurys, for example).

Millennial in Alabama as well. Keep up the good work. As for the HSA, it is my understanding that, as of 1/1/8, Alabama will comply with federal law when it comes to HSAs. Please correct me if I am misreading.


"Section 40-18-15.6

Deductions for contributions made to health savings accounts.

(a) For the purposes of this section, health savings account contributions are defined as contributions made by a taxpayer to his or her health savings account up to the maximum amount allowed pursuant to 26 USC §223.

(b) Alabama residents will be allowed to deduct contributions made on or after January 1, 2018, by or on behalf of such individual to a health savings account of such individual to coincide with annual amount allotted by federal law or regulation. Employer contributions are not includible in an employee's income and are therefore not deductible."

Grt2bOutdoors
Posts: 22411
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Location: New York

Re: Saving For Retirement as a Millennial

Post by Grt2bOutdoors » Tue Apr 03, 2018 1:21 pm

You are doing great! Keep it up! :sharebeer
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Nearly A Moose
Posts: 1059
Joined: Fri Apr 22, 2016 5:28 pm

Re: Saving For Retirement as a Millennial

Post by Nearly A Moose » Tue Apr 03, 2018 1:28 pm

I don't know if I'm a millennial or not, but good work, keep it up. Definitely check on the 401k vs Roth 401k as you mentioned. And the HSA. I wish I had done an HSA pre kids (they're a wildcard health-care-wise).

But overall you're doing great. I wouldn't worry one iota about what others are doing and spending. You don't want to be cheap - not for your friends, but because you don't want to deny yourself a richly lived life. But I can already tell you that spending time with friends, traveling, and engaging with your community provide much more richness than tons of luxuries. And when you and your friends are all struggling to manage the young-kids stage of life, you're going to be very happy to saved well, as those fancy cars and clothes aren't going to be nearly as important.
Pardon typos, I'm probably using my fat thumbs on a tiny phone.

mcraepat9
Posts: 1530
Joined: Thu Jul 16, 2015 11:46 am

Re: Saving For Retirement as a Millennial

Post by mcraepat9 » Tue Apr 03, 2018 2:02 pm

Lrt12 wrote:
Tue Apr 03, 2018 1:13 pm
mcraepat9 wrote:
Tue Apr 03, 2018 12:32 pm
rhinopylon wrote:
Tue Apr 03, 2018 10:57 am
I'm a slightly older millennial and made similar to what you're making at the same point in my career. Your saving rate is great and higher than mine was at the same time. I agree you shouldn't be paying extra on your mortgage. Pour all that into your 401k and reduce your taxes even more. You should be able to max your 401k and roth out completely. You're also at the age where you can make a HUGE difference in your future by maxing out HSA contributions. Put the riskiest portion of your allocation into your HSA and forget it.

You're doing great and are so much farther ahead than what I was at your age! Keep up the good work and work on increasing your income in the future.
Be careful with the HSA piece - as you may know, Alabama treats HSAs differently from most other states. In light of that treatment, if you go down the HSA path, you likely want to be mindful of what investments you have in there and focus on ones that are not subject to state income tax in AL (Treasurys, for example).

Millennial in Alabama as well. Keep up the good work. As for the HSA, it is my understanding that, as of 1/1/8, Alabama will comply with federal law when it comes to HSAs. Please correct me if I am misreading.


"Section 40-18-15.6

Deductions for contributions made to health savings accounts.

(a) For the purposes of this section, health savings account contributions are defined as contributions made by a taxpayer to his or her health savings account up to the maximum amount allowed pursuant to 26 USC §223.

(b) Alabama residents will be allowed to deduct contributions made on or after January 1, 2018, by or on behalf of such individual to a health savings account of such individual to coincide with annual amount allotted by federal law or regulation. Employer contributions are not includible in an employee's income and are therefore not deductible."
Thanks for this update. Looks like you are right. I assume AL made a similar change that says that dividends and gains in HSA are not taxable as well? The section you quoted seems to only cover contributions. However, I did some googling and it seems like this change was part of a general bill re AL HSAs conforming to fed tax treatment, so hopefully that is correct.
Amateur investors are not cool-headed logicians.

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rhinopylon
Posts: 83
Joined: Mon Apr 02, 2018 10:51 am

Re: Saving For Retirement as a Millennial

Post by rhinopylon » Tue Apr 03, 2018 8:32 pm

mcraepat9 wrote:
Tue Apr 03, 2018 2:02 pm
Lrt12 wrote:
Tue Apr 03, 2018 1:13 pm
mcraepat9 wrote:
Tue Apr 03, 2018 12:32 pm
rhinopylon wrote:
Tue Apr 03, 2018 10:57 am
I'm a slightly older millennial and made similar to what you're making at the same point in my career. Your saving rate is great and higher than mine was at the same time. I agree you shouldn't be paying extra on your mortgage. Pour all that into your 401k and reduce your taxes even more. You should be able to max your 401k and roth out completely. You're also at the age where you can make a HUGE difference in your future by maxing out HSA contributions. Put the riskiest portion of your allocation into your HSA and forget it.

You're doing great and are so much farther ahead than what I was at your age! Keep up the good work and work on increasing your income in the future.
Be careful with the HSA piece - as you may know, Alabama treats HSAs differently from most other states. In light of that treatment, if you go down the HSA path, you likely want to be mindful of what investments you have in there and focus on ones that are not subject to state income tax in AL (Treasurys, for example).

Millennial in Alabama as well. Keep up the good work. As for the HSA, it is my understanding that, as of 1/1/8, Alabama will comply with federal law when it comes to HSAs. Please correct me if I am misreading.


"Section 40-18-15.6

Deductions for contributions made to health savings accounts.

(a) For the purposes of this section, health savings account contributions are defined as contributions made by a taxpayer to his or her health savings account up to the maximum amount allowed pursuant to 26 USC §223.

(b) Alabama residents will be allowed to deduct contributions made on or after January 1, 2018, by or on behalf of such individual to a health savings account of such individual to coincide with annual amount allotted by federal law or regulation. Employer contributions are not includible in an employee's income and are therefore not deductible."
Thanks for this update. Looks like you are right. I assume AL made a similar change that says that dividends and gains in HSA are not taxable as well? The section you quoted seems to only cover contributions. However, I did some googling and it seems like this change was part of a general bill re AL HSAs conforming to fed tax treatment, so hopefully that is correct.
Good to read through all this. I never realized different states could have different laws about how HSAs are taxed. Something to be aware of at the least.

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