Ready to get serious about retirement.

[DanErvin88]

Hey guys, first post here.

The backstory:
-got married September 2014
-bought a house December 2015 ($290,000)
-age 27
-wife age 32
-dual income, both from the same company (where we met, she's been there 11 years, me 6)
-"living" expenses = just under 50% of take home pay. By 2019 this will drop to about 40% just by default.

My question is in regards to both of our retirement funds. Our company offers both Roth 401k and traditional 401k, and they match 50% of your first 6%. I have both accounts, the wife has traditional only. I have about 26k in the traditional, and 9k in the Roth. We reviews our budget last week and found through some simple re-allocation of our income, we should be able to save roughly $36,000 a year. Now we are trying to figure out how to divide and conquer. Should we be investing both accounts into the same markets? Or would it be beneficial to do differently with one versus the other? my goal is to "retire" by 40, and take on an extremely part time or side gig from there in an interest of my choosing. If this becomes reality, that still leaves another 20 years before I can touch those funds. Which makes me think, I should be investing more into a non-retirement account, or even a Roth IRA where the principal could be withdrawn of necessary. I've been doing my best to research and absorb as much info as I can, but it's depressing that SO much of Ameica is set on retiring at 65 with 5 million dollars on hand just to "live comfortably". Ideally, we want to figure out where to keep our emergency fund, short term retirement (funds that would be accessible at 40, and finally what the keep in the long term retirement accounts. Any and all advice and direction is much appreciated!

[Acadian]

Hi DanErvin88,

Just for clarification:
1) Will you get the 50% match in both the Roth 401k and the traditional 401k?
2) You would access these at age 60?

I'm no expert so likely can't give any advice but those were the questions I had (which means others may also have).

[seattlecyclone]

You say you "can't touch" your retirement accounts for 20 years after you plan to retire, but it just isn't true!

See https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/ and http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/ for more information about this.

Max out the traditional retirement accounts while you're working. Withdraw from them using the methods described in the above links when you retire.

[DanErvin88]

Holy smokes... I had no idea.

With a max of $18k, I think if the wife and I both top out our 401k's, we would be stretching near the end of our savings. The next couple of years should bring a simpler lifestyle, and with it more savings. However for now I think we will just crank the 401k knob to "11" for simplicity's sake. Thanks for the reply Seattle.

[MDM]

However for now I think we will just crank the 401k knob to "11" for simplicity's sake.

Depending on the fees charged in your 401k options and your total income, you might want to
1) Contribute enough to max the company match in the 401ks
2) Fill up your IRAs
3) Then go back and contribute what you can to the 401ks.

[georgicus]

MDM's advice is spot on -- the idea is to maximize employer's contribution ("free money") and then, for anything beyond that, minimize investment expenses.  Be sure your IRAs have low-cost funds as options.

If you have an HSA-eligible insurance plan, that is even more advantageous tax-wise.  Worth looking into if your family is healthy.

Roth vs. traditional -- Roth is worthwhile if you think your tax bracket in retirement will be higher or the same as it is now.  Which is probably the case at your age.  Plus you can withdraw contributions, as previously observed.  The trouble with 72t "substantially equal periodic payments" is that they are adjusted for your life expectancy, and at age 40 you will only be able to take 3% of your accounts

[georgicus]

... and avoid the 10% penalty.

[money_bunny]

You all as married people will have deductibility for the Traditional IRA at a much higher AGI than myself as a solo earner. This is something to look at, and I got it wrong a couple years ago when I had a few low earning years.

[desk_jockey]

it's depressing that SO much of Ameica is set on retiring at 65 with 5 million dollars on hand just to "live comfortably".

It's depressing that so much of America is not even thinking about saving for retirement.  About 75% have less than $100K saved:  http://time.com/money/4266111/retirement-crisis-worse-average-americans/

The good news is that those that are set on retiring at 65 with $5M are among the people that are saving.  I would imagine that as these people actually begin to accumulate assets, some of them will take the time to learn more about retirement savings and decide that they can retire a bit earlier with less funds.