In another version of answering Reddit questions, we look at this Reddit question about being “behind” for retirement:
“I got a late start in life professionally and I really only began saving for retirement at age 30, starting at 10% of my then $69k salary, then moving up in increments to 12%, 15%, to 19% as I switched jobs and began earning more money. I currently make $127k a year and I save 18% of my salary in a 401k. My employer matches 4% of my contributions. I also am maxing out my Roth IRA. I recently received a raise in March 2024 to $127k. I try to save more because I am concerned about how little I have saved for retirement based on my age. I currently have about $176k saved across multiple 401ks and IRAs. I am 39f, no kids, single, and I will be 40 in August. I have a modest amount of debt and I am trying very hard to increase my investments outside of the 401k and Roth IRA. Here’s a breakdown of my financials: Savings/Cash/etc: Retirement savings: $176k Emergency fund: $52.5k Stocks: $1800 Bonds: $550 Debts: Mortgage: $180k @ 2.375% (25 years left) Car Loan: $8650 @ 0.98% (2 years left) Credit Card: $4550 @ 0% (13 months remaining; I pay $350 and do not use this card) My take home pay is about $5570 after tax. My monthly expenses are about $3150. I have begun paying about $1500 a month to the 2024 IRA and putting the remainder into my emergency fund. Now that I have reached $50k in my emergency fund, my plan is to throw about $2000 a month into my brokerage account investing in index funds after maxing out the IRA, which I will do in the next four months. Aside from Social Security (I plan to retire at 67) and a small pension ($115/month but it increases every year that I work for my current employer. I have only been with them since March 2023, so the pension amount is low). When I use retirement calculators the numbers show that I would only have about $1.4MM at retirement which seems low to me as an elder millennial and my increased savings rate. Am I on track?”
What do you think? Is she in a rough spot? It doesn’t seem to us that she’s in trouble!
Given your current financial situation, you’re doing well but still have some room for improvement to ensure a comfortable retirement. Here’s a concise breakdown of your status and recommendations:
- Current Savings: You have $176k in retirement accounts, $52.5k in an emergency fund, and small amounts in stocks and bonds. You also have manageable debt with low interest rates.
- Income and Savings Rate: You earn $127k annually, saving 18% in your 401(k) with a 4% employer match, and maxing out your Roth IRA. That’s great! You also have a plan to invest $2,000 monthly in a brokerage account once your IRA is maxed out.
- Retirement Projection: With an estimated $1.4MM at retirement, while it seems low to you, it’s a solid foundation. Given that you’re 39 and aiming to retire at 67, you still have time to grow this amount sufficiently.
Recommendations to Stay on Track:
- Continue Increasing Contributions: Keep increasing your retirement contributions as your salary increases, if possible, and until you reach limits.
- Investment Strategy: Ensure your investments are diversified. You can afford market risk at this time in mostly stocks.
- Debt Management: Continue paying off your car loan and credit card as you are doing. While these are at low or zero interest, eliminating them can free up more cash for investing. At this pace you will own your home free and clear before retirement age.
- Regular Review: Use retirement calculators periodically and adjust your savings rate and investment strategy as needed. Consider consulting with a financial advisor for personalized advice.
- Tax Efficiency: Make use of tax-advantaged accounts like your 401(k) and Roth IRA to their full potential. Can you use an HSA? Also, explore other tax-efficient investments for your brokerage account.
By maintaining your current savings rate and investment strategy, you’re on a good path to ensure a secure retirement. Keep reassessing your goals and adjusting your plans as needed to stay on track.
What do our readers think? Is she in trouble?
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