401 K Questions/Recommendations

My advice is to save now. I'm 36 and didn't get aggressive with 401k until maybe 29 years old. Now maxing out my contribution and getting 9% from employer, wish I had maxed out earlier.

It is forced savings, learn to live with it and adjust accordingly. Work your way to the maximum contribution over the years.

When you say "yield" of 16.8%...do you mean return? If so that's not good as total return during the period is 22.8% for the S&P 500. Annualized, however is 16.8% so if that's the annualized return in your 401k since May 2016 then you're doing just fine and I wouldn't touch it.

Also think about taxes...make all or your contributions Roth 401k. This way you pay taxes now (at a low income tax rate). There's also a Roth IRA you should set up, even if you're putting a little at a time in. You could probably swing $100 a month and dollar cost average into an S&P now cost and commission free index fund with some brokers.

Finally, think about health care. We had kids and used a full insurance plan for it and barely paid a thing. Then we switched to HSAs and use those both as a slush fund for medical expenses and a savings mechanism since it's a tax deduction going in, grows tax free, and tax free coming out (we plan on using for medical expenses in retirement).

Bottom line is that I do feel "poor" now compared to those around me with similar gross incomes. However net worth will probably top $1 million within 5 years and it's because we force ourselves to save for retirement at the expense of many other things. Much, much cheaper to do this now vs. later in life when the compounding effect isn't close to being as big.

You're already doing the right thing - investing early. A major component of the retirement "equation" is time, and by investing early, you're maximizing the time investments can go.

At this point, my suggestion is this: contribute up to the maximum matching contribution (in your case the 6%). Because of your circumstances, you'll be needing that extra cash.

To catch up back to your previous investment level, use this strategy. Every year you get a raise, increase your contribution by 1%. You'll still see an increase in your take-home pay, but you'll gradually increase your overall contribution.

Also, stick with funds that are indexed to the S&P 500 (or things like that). The fees are very low, and generally those funds do well (especially over the long haul). Managed funds rarely outperform the S&P500 AND they carry HUGE fees, which stall growth.

You're got time on your side. Let it work for you.

Here's a good example of how the S&P 500 indexed funds are beating out managed funds:

http://fortune.com/2016/05/11/warren-buffett-hedge-fund-bet/

Good luck.

The best financial advice is pull out. Or get your wife on the pill. Or stick to oral and anal only. If you want to be financially well off in your 50s, don't have kids for a while.

Even without kids you guys are poor. Forget investing, pay off debt and get better jobs. How come your wife has student loans and barely makes above minimum wage?

At your income level I listen to the above and go with the Roth 401(k) if offfered. I would think you will be at a higher income level in retirement than you make now if you continue to put money away.

I would not assume you will get annual returns near 16 percent every year.

Look for low annual expense no load funds and go with diversity. Do not just look at return. Look at return given the level of risk. Determine your risk level and develop an asset allocation that covers different assets.

I would lower it to get the maximum company match, take any of the extra money and pay off your debt.

Once you're done with student loans and cc debt car loan whatever.. You can then bump that 401k back up.

Would you consider the interest rate on the student loans or other debt? His level of risk tolerance might not be the same as a radio host.

Should he consider the odds of making higher returns inside a tax advantaged account than the interest his debt?

Honestly great advice everyone.

We will make sure to be safe and not have kids too early!

I think I am going to lower my contribution to 6%-8% and use the extra cash to get the small amount owed on my car payed off quicker and then work towards the student loans.

Also, I think it is about time to look for a more competitive salary... This would help us a lot as well. My wife currently really enjoys what she does and gives her lots of free time/flexibility. But we have spoken about her picking up another part time job or seeking full time employment somewhere, especially if we want kids or want to own a home in the next 5-10 years.

I am not going to mess with the standard investment plan Fidelity recommended for me. It has low fees and will hopefully pay off in the long haul.

Join the Army....here me out.....

1. Your pay will be better.

2. You will still have a 401k Thrift Savings Plan that DOD matches up to 5% of your base pay.

3. Get on the Army Loan Repaymemt Program and they will pay off your student loans.

4. Free healthcare for when you decide to make babies.

5. VA home loans.

After your initial contract you can decide to reenlist at the minimum terms meaning you are only extending your current contract by 2 yrs if you do it right. Do this until you are done squeezing the Army.

Alan

*hear me out....

Shittemyself wrote:

Would you consider the interest rate on the student loans or other debt? His level of risk tolerance might not be the same as a radio host.

Should he consider the odds of making higher returns inside a tax advantaged account than the interest his debt?

Look at your post the "odds" of a higher rate of return.. also the odds of a big loss as well... he's not going to get rich with a few percentage points here or there, but he can be absolutely F'd if he has student loans, car loans, cc debt, and encounters a job loss or unexpected life event. He'll have to liquidate his 401k or part of it and lose any or all of what he "saved".

I prefer to invest from a point of strength, not weakness.

Even with added insurance costs and paying for your wife's student loans (unless they are HUGE), you should be doing slightly better financially than as a single guy.

I would go with the PLAN to keep your contributions where they are for now, pay for the insurance and your wife's student loans and see how tough it is. By keeping the AMOUNT of your contribution the same, you will actually be contributing less of a percentage since you now have your wife's income. When the two of you get raises over the next few years, I would consider trying to up your contribution to 15% of what you both take in.

Sometimes plans don't quite work out, but if you drop your contributions now before you are even really seeing the extra income, you might not raise it back up...at least give it a trial period with your same level of dollar amount contribution.

Flagpole, that is a good suggestion. I was working out the details today in Excel and spoke with the fiance about it as well. We are going to keep the 401K at 15% for now and should be able to get by and even continue to slowly build up our savings (savings account, not 401K).

It may be tough, but it is better than bailing before it gets tough and losing those contributions.

Flagpole, everyone knows that you started this thread.

And you posted from different devices, so your predictable "do an IP check" test is useless.

EZ10Miler wrote:

I would lower it to get the maximum company match, take any of the extra money and pay off your debt.

Once you're done with student loans and cc debt car loan whatever.. You can then bump that 401k back up.

I concur with this post.

You need money to live on and to buy a house.

NOPE! Even though you tried to make me not...WEJO, DO AN IP CHECK, AND IF I LIE, BAN ME FOR LIFE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Since that isn't good enough for you, my hand to God that I did not start this thread. Not something I would do.

Not sure how to verify that I am not flagpole. I have just recently started posting on threads, but using the site for a while. I can see why my compliment to Flagpole is alarming to some of you.

Back to the discussion, the decision I have to make is whether to lower my contribution or not. I think if we want to start saving money for a down payment on a house, then I should lessen what we are putting towards retirement for now.

Good Ol Days wrote:

I think if we want to start saving money for a down payment on a house, then I should lessen what we are putting towards retirement for now.

Yeah, that's what I'm saying.

Yes, 401k money is savings for retirement but so is buying a house.

If putting everything into your 401k means bumping back home ownership a few years, then that's a few years behind in establishing equity while you are making rent payments.

A small change in percentage points over years makes a huge difference.

For example, investing $10,000 for 30 years with 10% return vs 8%

$100,626.57 vs $174,494.02.

If someone has loans with a interest rate of 3% one could invest the extra principal each year in something like a no load very low annual cost balanced fund or even more conservative fund and odds are over a ten or 15 year period the annual return will be higher, many would be willing to take that risk. There is also additional benefit of having funds liquid in case an immediate need arises.

He would be more f'd if he used all his liquid money to pay off a loan and had no liquid assets and lost his job.

Cracks me up when you folks talk 8-10% investment returns. The market has never been higher. The last 17 1/2 years the S&P 500 has averaged 4.8% including dividends. International investments less, and NASDAQ under 2% for that period. Your 10 year average stock market return from here will be lucky to hit 2%. That said, I would continue to save, but equally reduce debt.