Hi,
I am extremely new to MMM, personal finance, investment and savings in general. I have so many questions and hoping you can help. I’ve read through most of MMM’s blog but may have to read it again or do some extra reading/researching to familiarize myself and learn more. Saving for us has become easier and easier so the next step is WHERE to save or how to allocate our savings.
My husband and I are newly weds and have recently both just graduated from grad school. To make it simple, we have calculated that we can safely say that we can put away $60K per year towards retirement/investment. The other money is used for living (24K) and saving for down payment and some student loans. But we are not sure where to put our savings. Do we max out on our retirement accounts first (HSA, IRA, 401K) which is the total saving is $53,750 (calculations below). Should we not max out and put more of it in an taxable investment account?
HSA maxed =$6,750
IRA maxed =$11,000
401K maxed =$36,000.00
Maxing our retirement =$53,750.00
However, we cannot touch this money until retirement age 59 ½. Using a simple compounding interest calculator at a assumption that growth is between 3%-7% = $1,122,229 (retirement fund) for 16 years (when my husband and I are 45) this number includes some of the money we already have as well over the past 2-3 years. I will use the rest of the $6350 into an investment account, which only comes out to be about $127,955 after 16 years. Assume that my annual expense is $27K so I would need that x 25 = 675,000K in order to retire early and pull out using the 4% rule. How am I able to build enough savings to reach $675,00K if I am using most of my savings to max out on retirement accounts?
The only way I can think of to reach $675,000 is to save another $33600 for the next 16 years (assuming compounding interest at 3%-7%). This means total savings per year has to be $87,350 for the next 16 years. However, that number just seems extremely hard without having to somehow find another income.
Am I making the right assumptions? Am I understanding the concept correctly? Should I be maxing out on retirement accounts (HSA/IRA/401K) first? Is there any rule of thumb on where to allocate the money first?
Do you have any book, blogs, video recommendations that can explain this concept further? Any recommendations for this newbie couple would be appreciated.
Thank you!