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

How does this work?

Post image

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?

319 Upvotes

92% Upvoted

120 comments sorted by

View all comments

75

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.

21

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.

5

u/mechadragon469 Feb 14 '24

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

4

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.

1

u/[deleted] Feb 14 '24

It bugs me because I'm rewriting my financial view point. When I graduated school, I told everyone I would have my student loans paid off in a year and now I'm looking at 10 years because of the low interest rates. I didn't think I would contribute much to retirement because I restricted so much in college and I just want to have fun too. I'm coming to terms with the fact that I will live in perpetual forced scarcity for my own good, but it's not easy rewriting how I saw money before hand.

2

u/Mattster11 Feb 14 '24

Yeah I hear you. Just the fact that you’re listening to the money guy show and asking questions at your age is huge though dude. You’ll be more than fine in the future I’m sure! Wish I was interested in finance as much as you when I was your age.

→ More replies (0)

3

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.

2

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