New to financial planning, I wasted 8 years of my 401K employment matching only 3%. Is it too late for me (30 F)?

[pmcr63]

@shanewp1988 Thanks to your income you have the opportunity to do better than most, as long as you keep your expenses under control. Definitely far from too late.

That income also disqualifies you from IRA by the way. (You could contribute $6500 to a regular IRA but it wouldn't be tax deductible, and you'd pay tax on the gains again on withdrawal - very likely not worth doing.)

You could make backdoor Roth contributions though. $6500 via regular IRA (immediately transferred to Roth IRA), and another $30k+ via mega backdoor if your employer's 401k plan supports it. (The feature would be called something like in-plan after-tax 401k Roth conversion or something like that.) Those are absolutely worth doing for any retirement savings before saving anywhere else, because they completely eliminate taxes on gains. That can easily put you ahead 50% or so over a few decades.

 

[drumchannell]

@shanewp1988

1. Max out 401k every year
2. Max out IRA every year, possibly backdoor Roth IRA depending on your income.
3. Max out HSA every year if you’re enrolled in a HDHP.
4. Invest the remainder into a taxable account.

 

[allroads]

@drumchannell I’d swap the order of the HSA and IRA.

 

[alexb23]

@drumchannell First step should honestly be
1. Control your expenses (home/auto) so you have money to do the following-

 

[alexb23]

@drumchannell First step should honestly be
1. Control your expenses (home/auto) so you have money to do the following-

 

[dancingkati]

@shanewp1988 Just an fyi. The limit for 401k contributions is 22,500 (not including employer match) annually. Sounds like you might be exceeding that with that 15% contribution.

 

[vixen8]

@dancingkati OP, you need to see this. You'll end up having to cease contributions around August/Sept at 15%, you'd need to check with your employer if they backfill matching contributions. For budgeting/ease of investing I would set your contribution to 11%. Then take that 4% delta between what you're currently investing and put it towards another tax advantaged investment account or brokerage.

 

[blueberry25]

@shanewp1988 Definately not to late. I f'd up worse than that. My employer didnt match so I stupidly didnt contribute. I didnt catch on until I was 36 and I didnt REALLY catch on until recently in my 40s. I bought a house at 35 and you already have one. Looking at the math I feel like Im still going to be just fine and you have a 10 year headstart on me.

I currently have 110k in my 401k at 44. At 30 I was making I think either 45k or 60k and I wasnt putting anything into a 401k or IRA.

Projecting that my wife and I will have $2M at age 55

 

[miaadora]

@shanewp1988 If it makes you feel any better, for the first 10 years of employment my job didn’t offer a 401K. I went back to get my MBA in my late 20s and basically restarted my career from scratch at age 30 with $20K in a Roth IRA, no emergency fund, and no college savings in place for my young child. Life is volatile and things are almost never as you read in financial planning guides. The good news is there’s always a chance to course correct.

 

[trey3200]

@shanewp1988 Yea you made some mistakes but good thing is your definitely not too late. First thing you need to do is drop your percentage of 401k to 11%. At 15%, you will hit your cap sooner than later unless your ok with that. I’d prefer to spread it out evenly throughout the year. That should bump up your take home a couple hundred as well. Outside of that, you can do a brokerage account if you want. With just your 401k maxed with match, your saving over 30k a year. If you retire at 60 and earn a inflation adjusted 7%, you’ll have 4.3 million in there. At a 4% withdrawal rate, that would pay you 172k a year starting at 60. Your doing great! Keep it up!

 

[shanewp1988]

@trey3200 Hey thanks so much! It is helpful to hear that retirement at 60 is still very possible

 

[unideus]

@shanewp1988

Is it too late for me (30 F)?

Definitely not!

How can I better set myself up for success and maximize my savings?

Mainly, live below your means, stay out of consumer debt (aside from mortgage), invest as much as you reasonably can as often as you can.

https://www.etf.com/docs/IfYouCan.pdf

https://www.bogleheads.org/wiki/Prioritizing_investments

https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

https://www.madfientist.com/traditional-ira-vs-roth-ira/

https://www.bogleheads.org/wiki/Traditional_versus_Roth

https://thefinancebuff.com/case-against-roth-401k.html

https://moneywithkatie.com/blog/the-final-traditional-vs-roth-debate-traditional-wins

https://wantfi.com/skip-the-roth-ira-and-401k-pay-less-tax.html

https://investor.vanguard.com/investor-resources-education/education/model-portfolio-allocation

https://www.optimizedportfolio.com/lazy-portfolios/

https://www.lazyportfolioetf.com/

https://portfoliocharts.com/2021/12/16/three-secret-ingredients-of-the-most-efficient-portfolios/

https://portfoliocharts.com/portfolios/

 

[saskia]

@shanewp1988 I have no 401k and my wife’s 401k is like 25k and I can’t afford to increase as I have two dependents you are doing better then you think.

 

[nealius]

@shanewp1988 Not at all too late. Good luck.

 

[believer2010]

@shanewp1988 I think you deserve a lot of credit. The half backed job so far is light years better then the majority of Americans. What is even better is that you are so young and you are taking action to improve your finances. You’re already a success. Keep building your financial knowledge.

My basic starting frame work if it’s of any use:
Spent some of your money (very limited) Good to maintain your physiology around finances. Being to tight is also a detriment.
-Never bring liquid cash to zero, ever.
-Absolutely No BS debt - ie expensive cars, credit cards to buy consumer crap only poor people buy.
-Invest
-Save only to a point to cover or hedge for the slow times.
I also physically hold a limited amount of physical cash. 1-3k or so.

 

[resjudicata]

@shanewp1988 You’re 30 and are doing infinitely better than most. You also make high income and are catching up. For comparison, I’m 44 and have 60k saved despite having a high income. Divorce is a bitch.

What stands out to me is your expenses. I’m going to assume you have 3-6 years of equity in your home and that payment is substantial. Also, $4k a month in spending is also substantial. That leaves you $2k a month for saving/retirement/emergencies. That seems very low for your income. I make 120k and am socking away $3k a month for comparison.

I would consider selling your home and downsizing. Keep your payment under $2500/mo if you can. Then work on your expenses. I’m sure you can easily cut $500-1000 there. I know there’s a ton of variables behind the home, and you probably have a low interest rate, but that makes the payment even more troubling to me. I feel you overextended yourself on the house but that’s just me.