Author Topic: Just Getting Started, Lots of Questions  (Read 4247 times)

WarrenHammand

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Just Getting Started, Lots of Questions
« on: February 21, 2015, 11:03:45 PM »
So here is my situation:
29 Single with 45k income, I have no debt and my monthly expenses leave me with about 600-800 a month to "save".

I've got my $1000 emergency fund in a savings account, earning little interest, but easy to get to if I need it.
I'm funneling contributions to a Roth IRA at Wisebanyan each week, with a 90% socks, 10% bonds allocation.
I fully match my employer contribution to my 401k.
I use Acorns to catch any small savings I can.
I no longer live paycheck to paycheck, but I feel like I am only 1 paycheck ahead of that.

Am I on the right track? Am I putting money where it should go? Thank you for your help.

sol

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Re: Just Getting Started, Lots of Questions
« Reply #1 on: February 21, 2015, 11:12:52 PM »
If by "on track" you mean "can I retire by age 69" then I think yes, you're on track.

$700/month is $8400/year out of your $45,000/year income is an 18.7% savings rate.  Look at the shockingly simple math post and assume a 6% return on your investments to calculate you will need to work 40 years.  40 years from age 29 is age 69, which is when you can retire with your current savings plan.

If you want to retire before that, you need to save more and spend less of your paycheck.

WarrenHammand

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Re: Just Getting Started, Lots of Questions
« Reply #2 on: February 21, 2015, 11:32:50 PM »
Look at the shockingly simple math post and assume a 6% return on your investments to calculate you will need to work 40 years.
Life changing article, thank you. I'll review ways to increase my savings. I should point out that the 600-800 is after putting money into my Roth IRA, usually about 400 a month.

What I would like a little more clarification on, am I doing the right thing putting it into a Roth IRA? Is there somewhere better to put my stash?

sol

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Re: Just Getting Started, Lots of Questions
« Reply #3 on: February 21, 2015, 11:54:32 PM »
What I would like a little more clarification on, am I doing the right thing putting it into a Roth IRA? Is there somewhere better to put my stash?

What's your tax burden?  If you're currently single and making 45,000 and take just the standard deduction then your taxable income should be around $38k and you'd be in the 15% tax bracket.  That's low enough that I would personally say a Roth is probably a fine choice for you.

As long as you're also contributing the minimum required to get your full employer match.  If your employer were to match 5% of your salary then you should definitely be putting the first $2250 into your 401k, and after that it's probably a toss up as to whether you contribute to your Roth or your 401k.  The general advice here is that for the majority of people the 401k is a better option but you might be an exception.  Your tax bracket is already low and you can use your Roth IRA as an extra emergency fund since all of your contributions can be withdrawn at any point with paying taxes or penalties, so it provides a nice little cushion to people just getting started.

I think 90/10 stocks/bonds is appropriate for someone your age.

If you're getting a 5% salary match and then contributing $400/month to your Roth and then contribution $700/month to your 401k or other investment vehicle, then you're total annual savings is $15,450/year.  15450/45000 is 34% savings rate, so now you're looking at retirement in more like 28 years.  That's a significant improvement.  That extra $400/month just bought you a 12 year paid vacation between the ages of 57 and 69.

If you can bump your savings rate up to like 50%, a common benchmark around here, then you get to retire in about 15 years at age 44.  The easy way to accomplish that is to start making more money without increasing your expenses.


2Birds1Stone

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Re: Just Getting Started, Lots of Questions
« Reply #4 on: February 22, 2015, 04:00:12 AM »
Hey Sol, isn't the shockingly simple math derived from take home pay,  15,450/~38-40,000 for a rough ~40% Savings rate?

sol

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Re: Just Getting Started, Lots of Questions
« Reply #5 on: February 22, 2015, 09:04:49 AM »
Hey Sol, isn't the shockingly simple math derived from take home pay,  15,450/~38-40,000 for a rough ~40% Savings rate?

Yes it is.

But as we've previously discussed, it's just a rule of thumb.  OP need a spreadsheet with his current numbers projected out to keep track of when he can really retire.

WarrenHammand

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Re: Just Getting Started, Lots of Questions
« Reply #6 on: February 22, 2015, 09:07:43 AM »
Hey Sol, isn't the shockingly simple math derived from take home pay,  15,450/~38-40,000 for a rough ~40% Savings rate?

Retiring at 51 vs 69 sounds a lot better. I've got a lot of reading to do and hopefully I can pick up another 10%.

MDM

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Re: Just Getting Started, Lots of Questions
« Reply #7 on: February 22, 2015, 03:13:27 PM »
...isn't the shockingly simple math derived from take home pay...Savings rate?
You can (and may find it easier) to ignore a "savings rate".  Here is a short version:

Time in years to FIRE = Ln((S + i*E/WR) / (S + i*A)) / Ln(1 + i)

A = Assets invested in accounts intended for retirement, $.  Ignore home value.
E = Expected expenses in retirement, $/yr.  You can estimate by taking current expenses and subtracting all loan expenses.
i = Annual return on investment, %/yr.  Assumed identical for amount "A" and "S".
S = Annual investment in 401k, IRA, HSA, taxable, etc., $/yr.  Ignore mortgage completely.
WR = Withdrawal rate, using the Trinity Study approach, %/yr.

See http://the-military-guide.com/2011/01/03/how-many-years-does-it-take-to-become-financially-independent-2/ and
http://forum.mrmoneymustache.com/share-your-badassity/question-about-the-mmm-calculations/msg105520/#msg105520 for (a few) more details.

The Beacon

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Re: Just Getting Started, Lots of Questions
« Reply #8 on: February 22, 2015, 08:52:23 PM »
Saving is important and making more is also important to achieve FIRE. If you lack either one of them, this road will be tough to travel because you can only save that much after all the expenses. You can learn a lot of saving techniques on this forum. In the mean time, I would invest some money and time in a skill  that can pay more or you can use for a side hustle such as plumbing/accounting/whatever.

Cwadda

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Re: Just Getting Started, Lots of Questions
« Reply #9 on: February 22, 2015, 09:27:56 PM »
You can bump up your Roth contributions to $458/month
You can contribute more to your 401(k). You can contribute up to $18k/year on your own (regardless of employer match)

Another option would be to contribute $3,000 per year to an HSA. Especially since you're single and young.

These are good ways to sock away money. Also the 401(k) decreases your taxable income. And for the HSA that money isn't taxed by medical.
« Last Edit: February 22, 2015, 09:31:00 PM by Cwadda »