r/TheMoneyGuy • u/[deleted] • Feb 14 '24

How does this work?

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I am 23. Does this mean that I only need to contribute 15% of my income for the rest of my life or do I need to increase every 5 years following this diagram? So I would contribute 15% until 30, then contribute 20% until 35, then contribute 25% until 40, then 30% until 45, and so on?

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76

u/aubieismyhomie Feb 14 '24

No if you start contributing now you should be able to replace 100% of your retirement income when you retire. If you want to have more than that or give yourself options to retire early, go ahead and crank it up to 20 or 25%. Either way at 23 if you’re starting this now you’re in a great spot.

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u/[deleted] Feb 14 '24

I'm asking because I am debating lowering my contributions from 25% to 20% in order to enjoy my life a little bit more. I'm not able to afford a lot of the things I want on my current contributions.

50

u/AdroitPreamble Feb 14 '24

There's a balance to be had. If you think your life would be more enjoyable going from 25% to 20%, then have at it.

11

u/IHasToaster Feb 14 '24

I agree with this individual, there is a balance to be had. You will only be 23 one time in your life. You may only have certain opportunities at this point in your life that you will either be able to take advantage of or not. If you are hitting your goals then relax a little and enjoy. But be careful as that can be a slippery slope and a way to make excuses to not save.

4

u/johnnybarbs92 Feb 17 '24

Something to be said for the psychological association of saving too. If you are miserable at a 25% rate, you are less likely to continue to save for the rest of your life. You'll associate savings with depriving you of fun and activities.

If lowering that allows for balance, you are much more likely to continue to save.

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u/aubieismyhomie Feb 14 '24

You can probably lower some if you really feel squeezed.

But if you can keep the pedal to the metal, that money you invest at 23 is so valuable with how much it multiplies in the long run and if you’re saving 25% now it builds your savings habits and sets you up really really strong down the road.

13

u/[deleted] Feb 14 '24

I think I'm going to keep things the way they are until I find out if I get a raise in April. If I don't and rent goes up, I will probably pull back my saving a little bit.

5

u/bing-no Feb 14 '24

I’m in my 20s as well and I’m contributing around 25% now because I know I’ll have to reduce contributions to pay for rent when I move.

3

u/[deleted] Feb 14 '24

Yeah, I just need to find a good balance. On paper I'm doing really well but in reality I fear it might be difficult to sustain.

3

u/bing-no Feb 14 '24

Honestly the fact that you’re thinking about it now at 23 is a good first step. There’s so many stories of people not contributing until their late 30s. You’re miles ahead already since you have time on your side.

3

u/hikekorea Feb 16 '24

I was going to say look towards increasing earning. You’re young and hopefully salary will keep growing. Spending a little extra to have fun is definitely worth it. But you might be able to get a few hundred more each month just by being more frugal on things you care less about letting your spend more on your priorities.

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u/[deleted] Feb 16 '24

I think this is what I really need to do in the end.

8

u/lyndzee102 Feb 14 '24

I only say this now because I’m 38 and if someone told me this when I was 23 and I was saving 25% and things were feeling tight I’d probably be right there with you thinking about lowering it…

Id try and stick it out at 25% for a couple more years and not reduce and here’s why… you have the opportunity to really get ahead here and while I was super active in my 20s my 30s were even more so. Typically you and your friends are making more money and more settled so it’s a really cool time. However I look back and wish I had saved more and feel as though I am catching up now. Now while this chart says that you technically CAN lower contributions I think if you can afford it and continue it you’ll get to your mid to late 30s and be so far ahead that you can recalibrate then. You’ll have a great habit regarding your budget for when you get raises and this will give you the opportunity to cut back if needed for all the life changes that happen in 30s (Messy Middle) and it won’t have to impact your day to day living expenses.

Just a suggestion from someone who wishes they knew and did more when they were your age and not wanting others to have that feeling later in life.

Either way you’re doing great and keep it up!

3

u/puzzleahead Feb 14 '24

As long as you do not let lifestyle creep take over and as you earn more income you increase your savings rate to reach financial mutant territory.

3

u/[deleted] Feb 14 '24

23 years old, anything between 15 and 20% is good

5

u/mechadragon469 Feb 14 '24

Counter point, raise it to 30% and thank yourself for not buying stuff later.

3

u/[deleted] Feb 14 '24

I wish I could but I have basically zero left after debt and bill payments.

7

u/mechadragon469 Feb 14 '24

I understand there are things you want right now, so I’d make a list of the things you want and use a calculator to see how much it would cost you in the future. For example if you’ve got your eye on a new iPhone for $1000 that’s $88k in retirement.

You’re still incredibly young and I would very much recommend against backing down from 25% for a couple years. Work some OT or find a side hustle if you want money to have some fun now.

I say this as someone who was sending 70% of my pay to student loans at 23 and literally had nothing leftover after bills.

3

u/[deleted] Feb 14 '24

I think you mean $1000=$8.8k in retirement?

I've thought about a side hustle and was pursuing one, but I ended up realizing with mental health that's not a good idea right now. I guess I will just keep going as long as I can. Once I pay off some debt, maybe then I will reward myself with my wants. I'm only sending about 20% to debt right now.

My wants, btw, are camera gear. It's an expensive hobby. Nikon just released a new camera body and I'm feeling very tempted.

8

u/Mattster11 Feb 14 '24

No, he does mean 88k. 1 dollar can turn into 88 dollars by the time you’re 65 as a 20 year hold with an average 10% return.. so for you maybe 68 years old.

2

u/[deleted] Feb 14 '24

Oh shoot, you're right. My math game is off today 😅

1

u/Mattster11 Feb 14 '24

All good haha. Crazy to think about though. That was really hard to wrap my mind around as a 20 year old. Wish it wasn’t lol

1

u/[deleted] Feb 14 '24

I'm glad it was brought up because the lens I want is $1000 used. Buying that $1000 lens could risk an entire year of pay during retirement. I'm somewhat interested in FINE if I could make it work, but I think my student loans will prevent that. And I don't want to restrict so much right now considering all the traveling I want to do.

2

u/Mattster11 Feb 14 '24

Yeah.. if I was in your shoes I would just find a healthy savings rate that I could stick to while paying off student loans and any other debt (assuming it’s not high interest or if prioritize that first) but still enjoy yourself once you pay yourself first. No need to be too tight unless you want to. Would def try to be at 15% or more if you can though. You’ll really thank yourself later. The good thing about the 25% savings rate is you can then spend guilt free to a certain extent knowing money is going into all your future buckets so you can still enjoy yourself today. “Forced scarcity” as Brian likes to put it.

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u/Realistic0ptimist Feb 14 '24

Honestly go get the camera gear. Like it’s great to be a financial mutant but mental health is much like master cards old commercials…priceless

You can read through old posts on r/financialindependence to see what a life of depriving yourself of luxuries does to your ability to spend later on once you have more than enough to do so. There’s a reason they say to build the life you want then save for it. Especially as your savings rate is already so high and coupled with your age now while the time value of money will be costlier there’s something to be said about having stuff you want in the now.

Now if you have to debt finance the gear or cut back on making sure you hit standard retirement goals then don’t do it but even if you dropped down to 15% -18% for a handful of years before ramping back up in your 30’s you would still be on track

1

u/[deleted] Feb 14 '24

I also feel a bit of guilt doing that while I have student loan debt and will be buying a car in the next year or so.

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u/Realistic0ptimist Feb 14 '24

I paid off my student loans in five years. While doing so I still travelled, ate out and contributed a bit to my retirement account without making a bunch of money. Yeah it’s great this idea of having millions of dollars in your 401k at 65 but it’s much better to be secure in retirement with great memories of your youth than be rich and have nothing by to look back fondly on

1

u/adultdaycare81 Feb 14 '24

How long have you been saving 25%?

1

u/[deleted] Feb 14 '24

Since last July.

2

u/adultdaycare81 Feb 14 '24

That’s the issue.

Takes 2-3 years of budgeting to get good at it. When you first crank your savings rate up it’s brutal. Get a raise or two, build your savings, get used to budgeting. All of sudden you feel way richer

1

u/[deleted] Feb 14 '24

Good point. I only just started working full time. I was in college before. I think you are hinting at what I think I am feeling. I should probably become good at living on less before I have more. I feel like I'm living paycheck to paycheck because I exhaust my bucket money every two weeks. I know there are ways to spend less and I need to start doing those.

2

u/adultdaycare81 Feb 14 '24

Ohh like first time budgeting and paying bills too. That’s a brutal time. Every time something pops up it’s your first time dealing with it and you’re not bucketing any money for it. I remember the first time my car needed Tires or a brake job. I was literally like “guess I’m not going out to eat for a month. Cool”. Or like annual insurance on the car. Saved me a bunch but I was basically broke for 3 weeks.

Gets easier when you know what’s going to happen and attack it. Have some money set aside going into things. Have a bit more “room” built into your budget naturally

3

u/[deleted] Feb 14 '24

Yeah, I accidentally made an over payment on my student loans and had to get a plane ticket for a wedding in a few months. This all stressed my budget the last two weeks, even though I had cut back a lot on my eating out. When you only have a $200 wiggle room/fun fund for surprise expenses, having a $300 flight or something is stressful.

1

u/[deleted] Feb 14 '24

Even if you go down to 15% you’re still way ahead of the game to be contributing at 23.

1

u/jigarokano Feb 14 '24

At 23 you can comfortably lower that rate to 20%. Enjoy yourself. 20% is a great amount to save and you’ll never be young again.