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My financial situation is not tight or anything! Even with contributing the 16%, I am still able to save about $700+ per month in cold hard cash, after all my monthly living expenses. However, if I reduced it down to 3% contributions, then I would be able to save about $1,500+ a month! Just think of all the things I can buy and do. I could buy a house much sooner than expected. I could buy random nice things, etc. and just live LIFE while I'm young and able!!!
You should talk with someone in payroll before you do this, if you do it at all. Some decades back I started here and at first just put the amount in the 401K that the company matched. A few months later whatever it was I wanted more cash for was satisfied, and I pushed the 401K contribution up to max. I was quite surprised at how little my paycheck was reduced. This was going from 8% contribution to 16%. My pay did not fall by anything like 8%. The tax advantage is huge.
If you know anything about chess, you know the first move on each side is almost pre-ordained - king's pawn moves up 2 squares - if you make any other first move, you must not know what you are doing. (next moves are debatable, but the first 2 moves are not) Same way, any decent financial advice would be to first maximize 401K contribution, not just up to what they will match, but the max allowed, is your first move. Not making this your first move means you don't know how to play the game, much less are any good at it.
If you are saving $700 per month, you should be able to buy a house, if that's what you want to do, soon enough.
Max out that 401K. Anyone who recommends otherwise is nuts.
I just did the retirement quiz/calculator thing on my 401k provider's website. The results said I'm on track to live the retirement lifestyle that I want. It said that I will need to have $90K a a year (in future dollars....the year 2051), but I will actually end up having $120K a year. Does that mean I'm oversaving?!
NO.
There's no such thing as "oversaving".
Considering it a payment towards FREEDOM. Being able to change to a different career or have a summer house down the shore or something like that later on in life.
I have to add - and vent a bit - i'm looking into taking out my Thrift Savings (part of my USPS retirement plan) money, since we have a bit of work to do on the house before we sell it. Just a small amount needs to be done, but i need some money to do it. The rest of the money i plan to invest, but not in a ROTH or any other kind of retirement account. I want it to be more available to me, since my income is low. (Disability, and a small pension.)
I am 57 1/2, but i can take it out early (do not have to wait til i'm 59 1/2) because i'm disabled (I can avoid the IRS 10% early withdrawal penalty). BUT - the 20% tax comes off the top, and my tax preparer said i will probably get none of it back, because it will be added to my income as if it's yearly income. It's just crazy to me. (Because it was originally not taxed.) Even if i itemize, i might OWE taxes and i've not had to even file for 4 yrs i make so little. So everyone - be ready for your big ol' tax chunk when you tax that money out!
Not meaning to hijack the thread...
If there is anyway to sell the house without making these improvements -- or to finance the improvements another way -- I would recommend that. Taking a lump sum payout from a tax deferred account, with or without early withdrawal penalty, is not advisable because as you noted it is entirely taxable in the year you receive it. Sudden jumps in income can make other income taxable in higher brackets too. Although you are too young for Social Security OASI, I have observed people see their Social Security jump into the taxable bracket when a one-off capital gain is realized, for example.
Your home improvement plan may be one time when HELOC debt is advisable -- it's also deductible if you do itemize.
[quote=nep321;45272897]My financial situation is not tight or anything! Even with contributing the 16%, I am still able to save about $700+ per month in cold hard cash, after all my monthly living expenses. However, if I reduced it down to 3% contributions, then I would be able to save about $1,500+ a month! Just think of all the things I can buy and do. I could buy a house much sooner than expected. I could buy random nice things, etc. and just live LIFE while I'm young and able!!![/QUOTE]
3% LOL.
You should be contributing the max that your employer matches. I assume that's not the 16% that you mentioned before. They're maybe matching 8% or something?
Then direct everything over that number elsewhere.
401K are traditionally a ~meh investment.
Buying "random nice things" doesn't match your description of yourself in your OP.
TOLD YA you'd change your mind over time.
I just didn't know it would be within hours.
The fact that you didn't even mention how much you're getting in matching - shows you basically don't know what you're doing yet.
Another clue: Saying you'd "likely not have a house payment at retirement." FOR SURE you don't have to have a housepayment in retirement going by your own numbers, if true. Hell, you can even pay a mortgage off in half the time very easily with a couple of known methods.
That and all the exclamation points all excited about spending.
Keep saving money outside of your max contribution 401K starting with an emergency fund which - some people say should be 3 months expenses but I say 18 months. And of COURSE, I assume you have no car payment etc.
My financial situation is not tight or anything! Even with contributing the 16%, I am still able to save about $700+ per month in cold hard cash, after all my monthly living expenses. However, if I reduced it down to 3% contributions, then I would be able to save about $1,500+ a month! Just think of all the things I can buy and do. I could buy a house much sooner than expected. I could buy random nice things, etc. and just live LIFE while I'm young and able!!![/QUOTE]
3% LOL.
You should be contributing the max that your employer matches. I assume that's not the 16% that you mentioned before. They're maybe matching 8% or something?
Then direct everything over that number elsewhere.
401K are traditionally a ~meh investment.
Buying "random nice things" doesn't match your description of yourself in your OP.
TOLD YA you'd change your mind over time.
I just didn't know it would be within hours.
The fact that you didn't even mention how much you're getting in matching - shows you basically don't know what you're doing yet.
That and all the exclamation points all excited about spending.
My company does NOT match 401k contributions at all. Therefore, the match rate is 0%.
My company does NOT match 401k contributions at all. Therefore, the match rate is 0%.
Oh then what's the point LOL. Nobody can advise you since nobody knows where you're directing your unmatched money. And how well it's doing.
STOP THE 16% ONGOING CONTRIBUTIONS, IMO. Buy some ROTHS.
Like I said before: diversify.
See a few financial advisers but NOT ones that push tired old mutual funds, EFTs or certain products they make money from - etc. You're at an age where learning about money can be fun even investing in individual growth stocks and seeing how you do. WITH GUIDANCE.
When you put your money in a mutual fund, or some other global product when ONE entity goes down the entire FUND suffers. That happened to me a zillion times. All the leaders when south. TYCO LOL I'll never forget. The SOB went to JAIL. That was in my Clipper. The top performing fund in my 401 for a long time then....DIED. Stupid Fanny & Freddie.
Make a promise to yourself to take responsibility for your money and you can enjoy it. Unless you have zero risk tolerance but it doesn't sound that way to me, As a mom. haha.
Although last time I saw Carl Icahn he said sit on cash for now.
You probably want to post on a financial subforum.
Last edited by runswithscissors; 08-26-2016 at 01:42 PM..
I'm speaking as one who is now comfortably retired, although I don't have exactly your situation; I'm married and our house is paid off.
However, I could budget to get by and be OK on 32K a year if I were single and had my present house and health. For now.
Would I be as happy as I am now? No.
I don't have money worries at present, but at 32K, I would have to make compromises on my spending. And by that, I mean on the one hand having to choose between getting the roof leaks fixed or getting the bald tires replaced this year or the next. Or having no air conditioner all summer while I save up for that repair. That kind of thing would make me worry a lot if it happened.
On the other hand, I like eating out at nice restaurants every Friday. At 32K income, I would have to give that up those $100/meal outings. And it's not just about luxuries like ordering tasty food.
Being poor when you are old is a very bad thing. If anything goes wrong, you are screwed because there will be nothing you can do to get additional money to change your life situation. Nobody wants to hire you for anything, especially if you have physical problems, and especially not after 70.
Even the army doesn't want you.
It's a matter of having options.
When you're living on the minimum, you no longer have options.
For example, you will not be able to hire a lawyer for the important things that lawyers do when you need them. Those are not free or done on contingency. You'll probably never need one, but it does happen.
One might say, "I don't need a car", or "I don't want to own a house".
Well, that's fine and many people may choose that. But on 32K a year, you won't have the option of deciding to change your mind.
We went to see lady gaga not long ago. We got the good tickets and were pretty close.
I turned around and saw the poor people who had to worship from over a hundred feet away.
That's where the people living on 32K were. I just cannot imagine anyone arranging their life on purpose to have to sit in the back.
I'd have no problem retiring on $32,000 per month.
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