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I'm 34 years old and currently have about 1 year's worth of my current salary in my retirement accounts.
Right now I contribute 10% of my salary (between me and employer) to my 401(k).
My goal is to retire in my late 50's
I am the sole earner in my house until our youngest of two children starts school.
EDITED to add: Our house currently has 19 years left on the mortgage, so I'll have that paid off by age 53 at the latest.
Hey Op, I edited this down to the points of interest. Regarding savings, 1 year at 34 is a little light for retirement, however, that's just your 401K. If you add the equity in your home, you're probably doing fine. You're next goal is to get 3.5 to 4 years by 40, so it's a steep climb.
A 10% savings rate is too littlefor retiring early. However, if you add the amount going against the principle payment (not the interest or escrow) as a savings, you'll get to your savings rate. 15% for 40 years seems to be the magic number for retiring. The savings rate is important because whatever you don't save, you are inherently spending. Every family has a different cost it HAS to have to function. So, if you want to retire earlier, you're going to need a higher savings rate...though not necessarily in 401K.
As the sole earner with 3 people depending on your check, life is precarious right now. I'd increase the savings rate, but I'd keep some either in a brokerage account or a money market. The 401K is a great place to grow this imaginary number of wealth...but realize it isn't real until you hit retirement age. If you need liquidity before then, you'll need something you can actually sell and use for cash.
At this point I would not raise my 401K, but would raise my cash savings. When my wife starts working, I'd have her contribute a very high amount to a 401K to try and max out the savings. If she is the swing money maker of the family, having a very high 401K savings means the family will not "get used to" her extra money to spend. At the same time, if the two of you decide to have another child, there will be less of a belt tightening adjustment at that point.
The other thing, depending on your market, is if the family is growing again, consider buying a home to fit the family and renting the old one rather than selling it. If the simple rule of thumb is to keep rent costs at less than a third of gross income, then the inverse of accumulating 3 rental homes should give you a gross income that is doable. Otherwise, accumulate shares with reinvested dividends to again get a passive income stream setup that doesn't allow your personal consumption to go up.
Hey Op, I edited this down to the points of interest. Regarding savings, 1 year at 34 is a little light for retirement, however, that's just your 401K. If you add the equity in your home, you're probably doing fine. You're next goal is to get 3.5 to 4 years by 40, so it's a steep climb.
A 10% savings rate is too littlefor retiring early. However, if you add the amount going against the principle payment (not the interest or escrow) as a savings, you'll get to your savings rate. 15% for 40 years seems to be the magic number for retiring. The savings rate is important because whatever you don't save, you are inherently spending. Every family has a different cost it HAS to have to function. So, if you want to retire earlier, you're going to need a higher savings rate...though not necessarily in 401K.
As the sole earner with 3 people depending on your check, life is precarious right now. I'd increase the savings rate, but I'd keep some either in a brokerage account or a money market. The 401K is a great place to grow this imaginary number of wealth...but realize it isn't real until you hit retirement age. If you need liquidity before then, you'll need something you can actually sell and use for cash.
At this point I would not raise my 401K, but would raise my cash savings. When my wife starts working, I'd have her contribute a very high amount to a 401K to try and max out the savings. If she is the swing money maker of the family, having a very high 401K savings means the family will not "get used to" her extra money to spend. At the same time, if the two of you decide to have another child, there will be less of a belt tightening adjustment at that point.
The other thing, depending on your market, is if the family is growing again, consider buying a home to fit the family and renting the old one rather than selling it. If the simple rule of thumb is to keep rent costs at less than a third of gross income, then the inverse of accumulating 3 rental homes should give you a gross income that is doable. Otherwise, accumulate shares with reinvested dividends to again get a passive income stream setup that doesn't allow your personal consumption to go up.
You're in decent shape overall though. Well done.
Thanks for the thoughtful reply. I am determined to inch up my contribution every year as pay raises come through. It will also become easier as some debts will be paid off. Also, I don't know if you read through all of the posts but we plan on staying in our house for the long haul. I only have 19 years left on the mortgage so it will be paid off sometime around 50. There shouldn't be a chance of any more kids due to taking surgical action to prevent this from happening...
Sweet Jeebus. If this guy isn't on a good track then I don't want to know what track most of America is on.
OP, I think you're doing pretty well. I would try and increase your savings by 1.5% every year going forward for the next 10-12 years or so. When the wife goes back to work this will become easier. I try to bank the vast majority of my wife's paycheck while also saving at least 10% of mine.
I don't know if your 50s is possible at this point, but maybe. I'd say more like 62. However, if you increase your savings/contributions steadily over the next decade, you may get closer to hitting your late 50s target.
Are you never planning on moving up from your current house?
Yes, we plan on staying in our house which will be paid for in 19 years at the most. I agree with your yearly increases and will be working towards this. It will also get easier as some of our debts are paid down. I think I would be okay with 62. Right now my goal is probably 58-62, I'll obviously be able to tighten that window as I get closer.
I'll also note that we plan on retiring to a rural area of our state where property taxes are much lower. I realize this could change between now and then though...
EDITED to add: Our house currently has 19 years left on the mortgage, so I'll have that paid off by age 53 at the latest.
Thats the biggie right there. I cringe every time I see someone moving into a new house in there late 40s-50s
Your house will be paid off during your prime earning years and you will be able to pack a lot away when its paid off.
So many people here are saying to increase your 401k contribution. I say don't. Diversify, put money in high yield savings, CDs and stuff that can't lose money and is more liquid if you got into a pinch down the road.
But I am 4 years younger than you, so maybe I don't have the magic retirement answer
There's a lot of years between now and your retirement. Trying to plan in a great amount of detail at this point is sort of futile. We don't know what the markets will do over the next 20-30 years. We don't know what SS will look like. Etc.
Also, we certainly don't know how much income you will need in retirement, and you probably do not even know yourself.
General advice is to try and save 10%-20% of gross income toward retirement. I realize that's a huge range, and to some extent it will depend on how much you can afford to save. If you were saving less than 10% I would strongly suggest trying to increase it. Otherwise, live your life and try to increase that rate of savings whenever you can without resorting to draconian measures.
When I posted this I was working in a permanent contract position at my company. I recently received the good news that my position is transitioning to direct hire. This relates to this thread because the 401k is much better than what I currently have.
Without changing my portion, the contribution will be going from 10% to 15%. According to a lot of advice in this thread it will put me in a much better position to retire in my late 50's.
To summarize, I am 34 and currently have 1X salary in retirement accounts. I am now contributing 15% to my 401k. I aim to increase by 1% each year, bringing myself to 20% by age 39. By this point it is possible I will be exceeding the maximum so at some point the increases may have to go into an IRA.
Regardless I hope that I will be on track to hit my goal of retiring at 58. I know there are many unknowns that can happen between now and then, but hey, it's never wrong to plan right? Health insurance is obviously a big question mark, and the changing landscape certainly makes that portion hard to plan for.
If you believe you could live comfortably on $2400 in today's dollars; and if your income and savings keep up with inflation until you are 59-1/2 years old - giving you that amount in 'then-year dollars' (probably about $10K per month), you are likely on a good track. The fact that you are concerned about this now and working toward an actual goal puts you far ahead of most who imagine life and retirement will simply happen ... with no major bumps in the road.
This assumes you actually pay-off your home mortgage and do not encumber yourself with a larger, more costly replacement; kids college, weddings and other health expenses (including your own) don't derail your plan; long periods of unemployment or reduced income don't creep in; and you stay the course on disciplined savings and living within your income (and probably increase your 401K savings deduction to 15%; --- and the market doesn't experience another 2008 melt-down as you approach 59).
Set your 1, 3, 5 and 20-year goals now (necessary to achieve your target). Periodically review and adjust those ... and you will be fine. (Otherwise, 25-30-years in the future is still a tad far to see clearly.)
Purely for information purposes for you to compare. I'm 36 with 1 child. Son just turned 3 last week and beginning "school" next week so I will not be continuing FSA contributions ($5k) in '17. While I have no exact target age for retirement yet, it would be nice to be fully retired by mid 60's. Using your statistical values I have just over 2 years salary in 401k, 1/2 year salary in Roth IRA, just under 1 year salary in a taxable account, 1/2 salary in emergency fund, $120k "equity" in residence which I make extra payments on (just in case we're in this particular house for the long haul), and $12k in 529 plan. Perhaps I'm just being pessimistic but feel as though I need to continue to bump up my savings to reach an early retirement. I am currently in a high COL area which will ultimately change later in life.
Go to you tube and search Ed Slott. Something to consider is in retirement most people want guaranteed income. That 401k offers no guarantees not to also mention potential taxes 20 or 30 years from now.
I'm sure many people remember the 2008-2009 markets and what that did to people expecting to use their 401k funds to retire. Where were the money gurus then?
When I posted this I was working in a permanent contract position at my company. I recently received the good news that my position is transitioning to direct hire. This relates to this thread because the 401k is much better than what I currently have.
Without changing my portion, the contribution will be going from 10% to 15%. According to a lot of advice in this thread it will put me in a much better position to retire in my late 50's.
To summarize, I am 34 and currently have 1X salary in retirement accounts. I am now contributing 15% to my 401k. I aim to increase by 1% each year, bringing myself to 20% by age 39. By this point it is possible I will be exceeding the maximum so at some point the increases may have to go into an IRA.
Regardless I hope that I will be on track to hit my goal of retiring at 58. I know there are many unknowns that can happen between now and then, but hey, it's never wrong to plan right? Health insurance is obviously a big question mark, and the changing landscape certainly makes that portion hard to plan for.
From what you have stated, it sounds like you are on the right track. I think the key is to have a plan and stay the course, even during the down times and there will be down times. Caltovegas mentioned the 2008-2009 markets. Chances are you will see another one or two of those between now and your planned retirement age. Just keep your head down and stay on track. During those down years, my portfolio lost 50% of it's value. I didn't sell a thing; just kept investing 15% of my income every month. As the markets recovered, I regained the value of what was lost and actually gained a lot of value in the funds I bought during the down years. When you have the time to wait it out, it can work to your advantage.
Make sure your plan also includes getting out and staying out of debt, getting your home paid off, kids through college, and paying cash for purchases, especially cars. Make sure you and your spouse are in agreement on everything, stay the course and you will be in great shape for that early retirement.
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