@vixen8 After tax contributions if the plan allows. Backdoor Roth IRA’s. HSA contributions, but pay for medical out of pocket and use HSA as a retirement account. Then, after tax brokerage. I can assure you it’s possible to save far more than $42,500 per year for retirement.
@vixen8 401k isn’t the only retirement saving vehicle.
$22,500 in 401k
$6,500 in Roth IRA
$3,850 HSA
$22,500 in 457b
And then depending on what mix of these you have access to, if there’s money left over, there’s no limit to how much you can save in a taxable brokerage account.
@meeniminyong I think the second paragraph is largely personal.
A household with no kids earning $300k and saving 15% and nothing else likely has high expenses that are going to continue into retirement. They should indeed save more.
A household with three kids at Philips Exeter and saving 15% for retirement and 10% for college is certainly living on a fairly tight budget, with expenses likely to plummet at retirement. 15% is going to be plenty.
@meeniminyong This. The 1.5x rule isnt the best though because it doesn't take into account income earning potential (think doctors who start deep in debt) or other investments (rental properties).
In any case you should still be saving significantly more. Do you have other assets?
@meeniminyong I just think that’s depressing. It’s not guaranteed you’ll even live to see retirement and 25% of your paycheck should go to it your whole life? My dad was alive for 1.5 years of his retirement.
I contribute 15%, and more when I have random funds (like tax returns or bonuses). If that’s not enough… I guess I’ll have to figure something else out. But when I do retirement calculators and add in social security (I estimate about two thirds of what the SSA calculator says I would receive), it says I’ll be fine.
For many people, in addition to their retirement, they’ll downsize and sell some large assets when they retire (large family home, second car, whatever), and that also increases their funds.
@benedix It’s perfectly reasonable and guess what, saving more lets you see more retirement years because you get to retire earlier. Retirement is not an age. Retirement is a financial condition. If you want to replace 80% of your pre-retirement income at age 65, then you need to be saving 25% from age 30-65. If you start earlier you can save a little less or move up the timeline.
MMM has a great graphic in this article that shows how many years you need to work before reaching retirement based on different savings rates. 15% is 43 years or in other words you will be able to retire at 65 if you saved 15% every year from age 22 to 65. 25% is 32 years or a retirement at age 54 if starting at 22.
My wife and I currently save about 60% of our gross income.
@meeniminyong Alternatively couldn't OP be planning on significantly cutting major expense (mortgage, car, etc.) by the time retirement rolls around to right size his "undersaving"?
I’m maxing my match which is 4%. I really don’t want to put much more of my income into the retirement fund as I need it for the house, kids, cars, vacations, etc
Respectfully, too bad. You should absolutely be able to significantly increase your retirement savings and still have money for all of the above IF you're living within your means. My savings rate was a lot higher while making a lot less and still managing all of those savings expenses, so it's possible.
And yes, you will need to do so in order to retire.
@jasonrporter0316 I'd recommend increasing your contributions significantly. Time to start budgeting. Vacations aren't going to seem as important when you have to sell your house just to retire and move away from your kids and grandkids in a LCOL area
@jasonrporter0316 Yes you are doing it all wrong but it’s not too late to change. At 170K, you should at least be maxing out your 401k at $22,500 to take advantage of your taxes. If you can’t save more, then you are living beyond your means. How are you planning to support yourself in retirement without having saved enough money?
@jasonrporter0316 You have missed out on good market gains over those 6 years by not maximizing your contributions. If you had invested just the 401k contribution max for 2017 ($18k) alone in an S&P500 indexed fund you'd have nearly the $40k you have now. And the 401k contribution max is less than the broadly recommended saving rate of 15% of your income for your salary.
Looking at it from another angle, after inflation over the next 30 years, you would need $300k to have the buying power of your current salary (given a 2% inflation rate and rounding down by a bit). Even if you only need 80% of that you're looking at needing $240k/yr in retirement. Using the 4% rule (which some say is too risky) you'd need $6 million saved by age 65. Even saving 25% of your current salary (that's a flat $42500/yr, I'm not accounting for salary or contribution growth in this specific calculation just to make it easy) and getting an 8% return on your investment leaves you nearly $1 million short. With just $40k saved to date, and only saving less than $15k/yr, you are going to fall far short of your retirement needs.
Edit: I realized after posting you may not be 35, which means the math might be slightly less dire if you increase your savings rate immediately as you have more time to catch up. Calculation above was for a 35 year old retiring in 30 years.
@jasonrporter0316 That’s fine, as long as you’re ok with not retiring before 75(and work in an industry where you can have a career at that age with a similar salary that your lifestyle requires)
But seriously, yes, you are doing it wrong. You’re living beyond your means if you can’t save more than 4% of your income
@jasonrporter0316 Yes that is the general rule, but reading your comment above looks like you don’t want to save but rather spend on kids, vacations, home, etc.. I mean no one can tell you otherwise if that’s what you set your mind to.
