How much should you save in your 401K before your 30? (credit card, student loan)

[8 SNAKE]

Originally Posted by wanneroo

Sure I've have heard a lot of people say that but markets go up and down and I'd rather have a roof over my head and only have to worry about upkeep and property tax then having a mortgage when I am 60. I've seen people lose plenty of money on investments before.

I certainly wouldn't advocate anyone having a mortgage at 60 either. What I am saying is that someone in his or her 30's and 40's shouldn't skimp on 401k, IRA or other retirement savings in order to aggressively pay down a mortgage that can be retired before retirement age to begin with.

Originally Posted by wanneroo

Life can throw some curve balls and you only have to look at the millions of people recently scrambling to make their mortgage payment.

Agreed. However, people should prepare as best they are able with emergency funds. That won't solve the problem, but they'd be in the same boat if they sank all of their money into paying down the debt early. Once that money is spent on the mortgage, it's gone.

Originally Posted by wanneroo

Having seen what has happened around me in life, I think it's wise not to sink everything into one barrel.

But aren't you advocating just that by telling people to give a mortgage more priority than a retirement account?

[8 SNAKE]

Originally Posted by wanneroo

I'm not saying don't invest in IRAs, 401K's etc. By all means do, I mean I know I am trying to take advantage of every tax reducing or tax deferred deal I can, finances permitting. But I'd rather not waste money paying interest to someone else on debt.

That's the rub with this scenario of choosing between extra mortgage payments and funding retirement accounts. If you avoid paying interest by paying down the mortgage, you lose out on the time value of money in retirement accounts. When you do the opposite, you lose out on interest expense to a lender. It all comes down to guessing which side will work out in your favor in the long run.

For the record, neither choice is a bad one in my opinion. Both are helping a person to create a brighter financial future.

[wanneroo]

Originally Posted by 8 SNAKE

I certainly wouldn't advocate anyone having a mortgage at 60 either. What I am saying is that someone in his or her 30's and 40's shouldn't skimp on 401k, IRA or other retirement savings in order to aggressively pay down a mortgage that can be retired before retirement age to begin with.

Agreed. However, people should prepare as best they are able with emergency funds. That won't solve the problem, but they'd be in the same boat if they sank all of their money into paying down the debt early. Once that money is spent on the mortgage, it's gone.

But aren't you advocating just that by telling people to give a mortgage more priority than a retirement account?

All depends on what peoples personal financial situation is. Ideally I'd maximize all my tax deferred or tax reducing investment vehicles but once I have a mortgage I'll endeavor to pay that down. If I can pay off something in 15 years rather than 30 then I'd rather do that.

Personally I find having things paid off is better for my health and my life. Both cars I have owned that had loans, I paid off both early. I saved a bit on interest, didn't continue to have a car payment sucked out of my bank account every month and could wake up in the morning knowing I had a paid for car in the driveway.

[wanneroo]

Originally Posted by 8 SNAKE

That's the rub with this scenario of choosing between extra mortgage payments and funding retirement accounts. If you avoid paying interest by paying down the mortgage, you lose out on the time value of money in retirement accounts. When you do the opposite, you lose out on interest expense to a lender. It all comes down to guessing which side will work out in your favor in the long run.

For the record, neither choice is a bad one in my opinion. Both are helping a person to create a brighter financial future.

I think the difference is one asset is tangible and the other isn't. I can live in a house but not a stock certificate.

Also with paying down mortgages, even a small amount extra paid on the principle can make a big difference. I know on my sisters mortgage, she calculated an extra $100 a month on principle would reduce the mortgage from 30 years to 19 years.

[no kudzu]

I'm excited to see responsible young people -when you are 63 anybody under 50 is young- with good savings ethics. You should be very proud. However some folks your age are still working on their education and might not have anything. So each case is individual. The ones working on advanced degrees are usually hoping this added education will eventually put them ahead of the curve. In this economy it is a crap shoot but I THINK WORTH THE RISK.

[8 SNAKE]

Originally Posted by wanneroo

I think the difference is one asset is tangible and the other isn't. I can live in a house but not a stock certificate.

It's all a matter of perspective. In your case, you prefer the tangible home instead of the paper wealth of a stock certificate.

Originally Posted by wanneroo

Also with paying down mortgages, even a small amount extra paid on the principle can make a big difference. I know on my sisters mortgage, she calculated an extra $100 a month on principle would reduce the mortgage from 30 years to 19 years.

The exact same thing holds true for money invested into an IRA/401k/etc. Small amounts invested over long periods of time add up. There's no difference, except that the mortgage rate is (usually) fixed and the rate of return on retirement accounts will vary.

[golfgal]

Originally Posted by Mike From NIU

At a minimum, I would say contribute to the 401k as much money as you get a company match for (assuming you get any). This is true for all ages. Then, any extra money for retirement that you can afford should go into a Roth IRA/401k.

Why Roths? If you are in your twenties, you are hopefully in a lower tax bracket than you will be in your thirties and fourties, and the bottom tax brackets are as low as they have ever been. I don't care what political persuasion you are, I think most people agree that the USA will have to raise taxes just to pay off its current obligations. They definitely won't go below the current 10%/15% for the bottom rungs. So, pay the 10-15% now and have all the earnings tax-free in the future.

I agree with this. Too many people are dependent on 401K's and IRA's and haven't figured out that those accounts are taxed in the end and that could be huge 50-80% maybe.

Originally Posted by wanneroo

I think saving for the future and taking advantage of the tax breaks offered is great, however it seems senseless to plow too much into savings if you have a bunch of debt or a mortgage.

I tend to believe in Suze Orman's philosophy that you will always need a roof over your head. You can't live in a stock certificate. I'd rather focus more on paying off the house first.

I know someone that was bragging recently about having $100k in 401k's but also has at least $200k to go on the mortgage and another $100K in car loan and unsecured debt.

Sorry but Suze is not the financial guru she thinks she is. First, if your investments are earning on average over the years 8-10% or better and your mortgage is at 5% like ou's is, extra money is going into our investments. You LOSE money otherwise, and it could be serious money if you are talking 5% over 30 years. If you plan right your mortgage could easily be paid off by retirement and if not that extra 5% you earned over time will MORE than cover your entire mortgage.

There is something nice about having your mortgage paid off but if you are strictly taking from a financial standpoint, it doesn't make sense to do that. You can still live in your home if you are making a mortgage payment last time I checked.

[no kudzu]

I think the psychological advantage of living in a paid for house is greater than the financial advantage. It seems to be taken as gospel that your first priority is paying your mortgage off but this recession and impossible real estate market has shown it can be a disaster to have all your money tied up in your house.
When real estate started losing value think of those folks who lost so much value in their home and they didn't have anything but a paid for home. If they had diversified, they would have had some savings as well.
We bought this house-hopefully our last one- in 2007 right before it hit the fan. DH was of the mindset we should buy it outright and not have a mortgage hanging over us. We were 60 and 67. Both still working and planning to continue indefinitely. But I wanted to have a nice cushion and flexibility to make other choices. We compromised and put down half in cash. The rest of our money was put into good investments for people our ages. For us it was the right thing to do.

[hml1976]

We're 33 and have always contributed 15% to our retirement, mostly 401Ks although in order to meet that 15% now we also have IRAs, we have a substantial amount for our ages and the fact that we both started in the first years out of college making in the 20K range. Dh hopes to retire at 60, I'm a SAHM with no plans to return to the work force.

We also have a 300K mortgage (put 20% down) and are not paying extra on that because of the nature of my husband's work we move a lot and who knows if our mortgage is a safe investment in the short term.

[Donn2390]

When I was 30 years old, there was no such thing as 401K. When 401K was first introduced, it was only for management, so I was probably in my mid 40's before I was able to get involved. So while it's ideal to get involved as early as possible, you can still save plenty if you work at it.
I contributed the max, and played "Catch-up" as soon as I was eligible. Even starting as late as I did, I amassed several hundred thousand, so don't worry about only having $9K at age 30. You have 35 years left to build your account.