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We are currently living on one income now and don't have the room for much savings. Currently are contributing to two mandatory programs, one 5% and another 3%. Is this a decent start until we are in a better situation? Both 24.
Edit: Nevermind, its a defined plan that will pay out a pension. But what other steps should we take now or in the future?
We are currently living on one income... Both 24. ...
contributing to two mandatory programs, one 5% and another 3%.
Does this mean that 8% of your gross income is going into work based retirement plans?
If so, and the companies match your contribution... up the amounts to the max.
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Is this a decent start until we are in a better situation?
Yes.
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But what other steps should we take now or in the future?
Let's explore that "living on one income" thing.
If only 5% or 8% of that 2nd salary is going into the "mandatory program"...
where is the other 92-95% of that income going?
(The answer is supposed to be savings of various types for various purposes
like buying a house, future kids, continuing education, emergency fund, etc.)
Does this mean that 8% of your gross income is going into work based retirement plans?
If so, and the companies match your contribution... up the amounts to the max.
Yes.
Let's explore that "living on one income" thing.
If only 5% or 8% of that 2nd salary is going into the "mandatory program"...
where is the other 92-95% of that income going?
(The answer is supposed to be savings of various types for various purposes
like buying a house, future kids, continuing education, emergency fund, etc.)
One income as in only one of us is working at the moment. I figured out its a pension plan after first posting, so the percent contribution is really irrelevant, just what the state mandates for their pension program. Pays out as the average annual pay for the five highest years times 1.65% times number of service years. Other additional options are a 403 and 457 but like I said, we cant afford it at the moment. In theory, is the pension designed to be sufficient?
One income as in only one of us is working at the moment. I figured out its a pension plan after first posting, so the percent contribution is really irrelevant, just what the state mandates for their pension program. Pays out as the average annual pay for the five highest years times 1.65% times number of service years. Other additional options are a 403 and 457 but like I said, we cant afford it at the moment. In theory, is the pension designed to be sufficient?
no....most only cover a % of your income based on the amount of pay and time with company and there are caps on covered compensation. I would highly recommend to invest into an IRA as well...and do it as if there was no pension. 15% of your gross pay is the typical allocation for the IRA (there are caps to this as well...I think $17,500 is the max with catch up contributions of $5,500 if you are above a certain age).
One income as in only one of us is working at the moment.
That's a bit different than what "living on one income" usually implies:
that both are working and one salary is being saved.
At 24 and before kids come... that would be ideal.
The more you save when young the better off you'll be.
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In theory, is the pension designed to be sufficient?
Every deal is different. Every couples needs are different.
You have twenty years of "other stuff" to get through before
looking beyond the big picture of just saving every penny that you can.
At this stage in your life you have a LOT of physical assets to accumulate
in addition to savings/investments and/or retirement funds.
One income as in only one of us is working at the moment. I figured out its a pension plan after first posting, so the percent contribution is really irrelevant, just what the state mandates for their pension program. Pays out as the average annual pay for the five highest years times 1.65% times number of service years. Other additional options are a 403 and 457 but like I said, we cant afford it at the moment. In theory, is the pension designed to be sufficient?
Do you plan on working for 60 years? It's sufficient. If you don't plan on working for 60 years, then you need to look at ways of reducing your expenses in retirement. That or figure out how to earn more money such that you can survive on less than all your earnings.
Location: Chapel Hill, NC, formerly NoVA and Phila
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Originally Posted by Grsz11
One income as in only one of us is working at the moment. I figured out its a pension plan after first posting, so the percent contribution is really irrelevant, just what the state mandates for their pension program. Pays out as the average annual pay for the five highest years times 1.65% times number of service years. Other additional options are a 403 and 457 but like I said, we cant afford it at the moment. In theory, is the pension designed to be sufficient?
Is there a match for the 403b or the 457? If so, you should be contributing up the match at a very minimum.
One income as in only one of us is working at the moment. I figured out its a pension plan after first posting, so the percent contribution is really irrelevant, just what the state mandates for their pension program. Pays out as the average annual pay for the five highest years times 1.65% times number of service years. Other additional options are a 403 and 457 but like I said, we cant afford it at the moment. In theory, is the pension designed to be sufficient?
1.65% X 30 years of service would be 49.5% of your last year's salary, so I would say no. Plus, you don't even know if you will work for the same employer for 30 years.
Generally speaking, you'll need to save 15% of your salary throughout your working life to have a decent retirement. If you have a pension, you may not need to save that much, but I would aim to save at least 15% anyway, 'cause stuff happens and very few people have too much money put away compared to the number of folks who haven't put away enough.
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