Retirement Savings and other savings (55, dump, federal, state)

[MTBer]

My son is a recent college grad and is unable to secure employment in his field for the moment.


While he continues the search he landed an office job grossing $33-34,000K/yr.


He will be living at my home to lower expenses and really will have no other expenses other then gas for his car and entertainment.


He is covered by my health/dental/optical plan so he has no expenses there. I have no plans to have him pay rent. He will help out with household duties, cooking, shopping, tending the dogs, etc.


He is interested in saving and has always proven to be responsible despite access to my credit cards and took on several jobs at college despite the fact that I told him it wasn't necessary.


My question is: What is a reasonable amount for him to put towards the work retirement plan and how much additional to regular savings and investments?


Thanks for the help.

[akck]

On the extreme side, I've heard of some putting over 50% into savings. These are people who intend to retire early mostly. If that is his goal, I'd suggest he put that or more towards savings. To be more reasonable, I suggest he get into the habit of saving 15-25% at this point. If it becomes a habit, it will hopefully continue through his working life, At minimum, he should save enough to get the employer match on any 401k contributions. It's not nearly enough, but you should never bypass free money.

You can also charge him rent and save the payments for him. That way, you can give him a nice sum towards the purchase of his own house.

[oldsoldier1976]

Akck has good ideas and I will expand. Have him put $5k in a Roth IRA at TD Amerie Rade or Charles Schwab. That he can do every year. That is at or very near max annual Ira contribution. It might be 5500 so ask if he has enough. If he has a 401k or 403b at work do some there too. He can roll that to new company when he moves. The work one he can really do a lot. 17k annual is near max so the sky is the limit there. He could also start an emergency cash fund but that might me asking too much of a single early 20 something.

A take on the rent idea. You could start that ROTH IRA for him with rent money.

[jghorton]

The 'trick' for young people learning how to live within their means and save for the future is starting-out by saving a fixed percentage ... before they even get their hands on it.

If your son starts with a basic $5K annual retirement fund, plus $2K emergency and savings ...and then increases that amount proportionately as his income increases, he will never miss what he didn't have ... a will build-up a nice nest egg.

Over the years, we often simply 'banked' increases, as a means of saving for retirement without pain. We then retired early and have plenty of resources to last us for the rest of our lives.

[marino760]

He's just out of college. Sure give him some advice but also let him live a little and don't pressure him at this point. He's young, going to want to date and start a family at some point. Don't make saving for retiring his #1 priority right now. He needs to make some mistakes early on to learn how life works. He has to live and get life experiences and grow up.
That's how I see it.

[MTBer]

Thanks for the suggestions so far. I don't need to charge him rent and then fund the ROTH. I can suggest it and he will do it on his own.


I'm just unsure what percent of his salary should go into IRA and what percentage into short term/emergency rainy day savings.


Roughly calculating after Fed, State. SS/med. taxes and taking into account he will have more of his salary federally taxed at the 15% rate due to his summer and school term employment, he should be taking home about $450/week.


I'd like him to put away at least $225 a week preferably more. What percentage would you put into 403b, RothIRA, and savings?

[brava4]

Why not put this on the Personal Finance forum? You might get much more replies.

[WestieJeff]

I would max out the Roth IRA since 1) his current tax bracket is low 2) the principal contribution can always be taken out penalty free so it can function as an emergency fund 3) you have a limited opportunity to contribute to Roth IRA.


If he can max out a $5500 Roth IRA, I think that's a great starting place. The goal should be to stick with saving a minimum 10% of his net income in retirement vehicles.


If he is just starting out, I wouldn't be "demanding" he save 50% of his income. I would let him have some freedom to spend some discretionary income, maxing out a Roth IRA would be sufficient in my eyes.

[StealthRabbit]

As mentioned,
Max the ROTH (my kids started theirs at age 12 and I matched their earnings 100% till age 18)
Max any company plan.

I would suggest 25% max into 'qualified' accts, but if he wants a real estate savings plan.(for down payment)... Dump extra dough into a fund for that.


When single and free.... I saved 100% of my 'real job' salary, and got PT jobs for living expenses. That worked well age 15 to age 27). 12 yrs, never touched my FT salary. It was a good plan at the time. (I was caring for my parents, so had to buy my first home at age 19 so they / and I were not homeless), in hindsight.... A Very risky plan; "live-for-today" tomorrow may not come.

Enjoy life at a small cost. Retirement is 40 yrs away for him.

[aridon]

He should be maxing what he'd pay for rent or mortgage into his retirement accounts and then some. Get him used to paying it and not spending it now that he doesn't have bills.