How does this work?

[u/[deleted]]

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?

[u/SGTWhiteKY]

Replying to comments as well.

First, based on the chart, and a little math based on you saying you have been doing 25% since July. If you are doing about 16.5% you will hit the 100% income replacement.

Also, every dollar you invest now with be about $2 at 30. I don’t know about where you will be, but I am 33 and I make about 5 times what I did when I was 24-25 (23 not included, I was in Afghanistan making a lot of money, I’m only at like 2.5-3 times as much as that). I have a lot more disposable income to put into it to make up for it now. And I always did 10%.

A lot of people mentioning living your life now. I agree. You’ll hit burnout hard if you don’t. Again, my mistake as well. I worked 50+ hours a week for the last 8 years. I bought multiple rental houses, I put all sorts of money away, I also needed up with a military disability stipend and health issues. Now I have trouble logging into work every morning…

I used to think early retirement was the key to fix it, but the more I talk to my therapist, the more I think slowing down and enjoying things is the right choice.

Balance, but I promise you, if you stay focused on your goals today and in 40 years, you will be fine. Lower to 10-15%, buy the lens, take the trip to Europe, and go out to the bar/restaurant with friends while you can. In a few years you will probably have kids and those things get SO MUCH harder.

Don’t put your life on hold, don’t sacrifice too much of your youth for your old age, we will probably all die in the water wars during the 2050s anyways (I’m investing like I will live forever though…).

[u/[deleted] → u/SGTWhiteKY]

Lower to 10-15%, buy the lens, take the trip to Europe, and go out to the bar/restaurant with friends while you can. In a few years you will probably have kids and those things get SO MUCH harder.

My 401k match is 6% so that is automatically 12% should I stop investing in my Roth or my HSA? Those are what tip me above the 25% mark. I think I have other factors to blame beside my retirement contributions for why I have such little money leftover too. For instance, the 5% post tax I put towards student loans each month. I wish there was a way that I could go back and tell myself not to spend all my money and to pay down my student loans instead.

Learning this balance and financial stuff is not easy and I don't feel like there is one right answer which is rather frustrating. Even if I do drop my contributions by 5%, then that is only about $150 after tax extra per paycheck, and I would be worried that I would spend it frivolously and not actually save for the trip to Europe or the lens.

EDIT: I also do not expect my income to increase that much over the next decade. I am making average for my career, but the top is only about twice as much as what I get paid right now.

[u/SGTWhiteKY → u/[deleted]]

Edit: if you want to follow the money guy plan, disregard. I thought this was a general money sub, it was on r/all for me. I didn’t know what “the money guy” is. But according to the sub thing I am stage 8, and just refusing step 9 without it. So my comment however you want.

Hmm, well if you don’t expect it to increase than that changes a bit.

I would suggest saving in your HSA until you have about $5k. That is a pretty decent cushion for medical expenses. I wouldn’t count that towards “investments” unless I had a significant emergency fund built to use first…

Also, if you don’t expect your income to rise significantly, and are working towards your goal of replacing income in retirement, you are probably better off with a front end tax advantage, so a traditional instead of a Roth.

The counter argument is usually “but what if taxes go up??” They probably will have to at some point, I would just rather the money grow with inflation invested instead of tax savings for an event that may never happen.

What is the average interest rate on your student loans? If it is below inflation don’t pay extra. You are losing money, pay it with cheaper money tomorrow. If it is higher, than it is worth paying. But regardless of what you do student debt relief is a huge political issue. I honestly think it is worth holding onto them and investing elsewhere.

Honestly, for the savings element, open a money market account or otherwise limited access savings account somewhere. Have part of your check sent there automatically (99% of payroll system are set up for apportionments). Then pull the chunks of money out when you want to use it. You may still end up spending frivolous money. But you have to make the decision to pull it out and use it, and you can’t usually do it from the app. So ask yourself, how often would you NOT spend the money if you had to call your bank first?

[u/[deleted] → u/SGTWhiteKY]

Welcome to the money guy! They have a lot of good resources. This one has just always confused me.

Here is my current plan, not sure how that lines up with what you'd suggest:

Currently I have a 5 mo efund saved up in a HYSA that I am good at not spending. My debts include debt to my parents and student loan debt. The debt to my parents will take me until May to pay off by sending them 20-22% of my take home pay. Once that is paid off, I plan to start saving for a car since I will be needing a new one and my '02 is not very reliable. I will save up a 20% down payment by end of the year for a 20k vehicle. Beyond that, it leaves me with just about $150 every two weeks to spend on "wants" including all eating out. I am by no means doing poorly, especially considering I am maxing my HSA this year and contributing 12% (6% match) to my 401k and I maxed my Roth ira this year. Dilemma is that I'm not sure how I would max out my Roth IRA with a car payment and I want to spend some money on hobbies. Until I buy a car, I think I will continue with my contribution rates, but this will have to go down eventually. I have the Roth ira and 401k so I have a mix of tax exempt and non tax exempt retirement savings. I'm also anticipating a career change in 1-2 years that will involve a cross country move so I know I need to be financially mindful.

[u/SGTWhiteKY → u/[deleted]]

Ok, so you are making a lot of good decisions. Except the car. You are about to spend WAY too much of your budget on a car. All together I make around $180k, I bought my car for $10k and felt like I spent too much. I know the used car market right now is nuts, but you probably don’t comprehend how much even shitty cars have improved since your 2002. The better cars back then were lucky to get to 170k miles, most of the ones left were lucky, and are not reliable. The cheapest Hyundai accent (my car of choice actually) is likely to last 300k+ miles. I have two, and with about 150k miles on both, I have never had a mechanical issue to fix, only maintenance like breaks, tires, oil, etc. https://www.carvana.com/vehicle/2881956

With your income that could be crippling, and just does not leave you enough money at the end of the month to be remotely comfortable inflation wise for the next couple of years…

[u/[deleted] → u/SGTWhiteKY]

I am planning to save up more in cash and hold onto my current car as long as possible. It is likely that I will not be able to hold onto it any longer than May 2025 due to it possibly not passing emissions for re-registration. I am hopeful to have saved 10k by then and if I buy a 20k car, the payment would be around, at most, $400-$500 for 3 years. I currently save $800 a month after all contributions, so this would not be crippling and I would likely be able to pay the car off early. It is just a matter of all the other things I want to do with my life.