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31 with some savings and no sense of pogress
Old 06-23-2011, 10:00 AM   #1
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31 with some savings and no sense of pogress

I am 31, married and my wife and I have ~48k distributed among Roth IRAs and 401ks with an additional ~22k in taxable mutual funds (this may be a down-payment in the future.)

We do not have much in the way of other savings, maybe 2-4k in bank accounts that fluctuates from month to month but always use this to pay monthly bills. We hold no consumer debt but I have ~ 24k in student loans at 2.2%.

We rent and I currently make 51000 with a 4% employer match and try to sock 10% away pre-tax + the 4% match. I also have maxed out my Roth in previous years but that will be tighter to do now. Wife currently does not have a job since we just moved for mine but will probably work in the future, although we look forward to starting a family and buying a house in the future.

I have no sense of where I stand on my road to retirement. I like my job and like to be engaged in society, so I do not want to necessarily quit working early but as the years go by I may get more tired.

Am I on track? Do I not nearly have enough? What should I be doing differently.
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Old 06-23-2011, 10:20 AM   #2
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Welcome aboard. It seems that you are off to a good start.

You should trying playing around with FIREcalc (link at the bottom of the page). It allows you to set a future retirement date and account for savings between now and then. However, you'll need to make some estimate of your cash needs in retirement. With luck, by then you won't be making student loan payments. And you won't be saving for retirement anymore or payroll taxes (FICA). So if you are comfortable with your current income and expenses, you could just subtract those numbers out of your current income, add a swag for health insurance unless you have some other plan and see how it works out. This far out from retirement, you should take anything it says with a grain of salt, but it will give you some rough ideas as to the ongoing savings rate you might need.

As you correctly predict, having children, buying a house and having your spouse work will significantly affect your numbers.

As far as your savings, I would contribute only enough to the 401k to get the employer match, then fill up the Roth. If there is anything left over, then go back to the 401K. Your tax rates are unlikely to ever be lower than they are now, so the Roth is a valuable thing.
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Old 06-23-2011, 11:49 AM   #3
Confused about dryer sheets
 
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Thank you for the reply.

Quote:
Originally Posted by Gumby View Post
As far as your savings, I would contribute only enough to the 401k to get the employer match, then fill up the Roth. If there is anything left over, then go back to the 401K. Your tax rates are unlikely to ever be lower than they are now, so the Roth is a valuable thing.
I thought that was the way to do it but then red that having money also in a 401k was a hedge against future tax unknowns. I will just contribute up to the match and then ROTH away as I have been doing.

Here is the response that I got from entering data in FIREcalc.

Here is how your portfolio would have fared in each of the 221 cycles. The lowest and highest portfolio balance throughout your retirement was $70,000 to $2,434,366, with an average of $1,037,414.

I put in my current portfolio of 70000 and spending of 35000 with retirement in 30 years (2041) I said I would contribute 7140 (14%) per year additional and did not enter information for social security. The portfolio choice I selected was the random performance with the default values.
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Old 06-23-2011, 12:15 PM   #4
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Quote:
Originally Posted by fredtwinbent View Post
I thought that was the way to do it but then red that having money also in a 401k was a hedge against future tax unknowns.
By using a Roth, you are choosing to pay tax on the original amount at today's rates, and the earnings are tax free in the future, regardless of changes to the tax code.

By using a 401k, you are choosing to make a bet on what tax rates will be in the future, because you will pay the rate (on both the original amount and on the earnings) existing at the time of withdrawal. Remember also that a 401k converts capital gains into ordinary income.

Now, if you think tax rates in general, or your tax rates in particular, might be lower at the time of withdrawal than they are now, you might favor a 401k. But I have a hard time believing that they will be. I think it is clear that everyone's taxes will go up in the future due to our current national debt. And you are currently in the 15% bracket. When your spouse starts working (assuming a similar paycheck as you), you will immediately jump to the 25% bracket.

In fact, if I were in your shoes, I might think about a Roth conversion. See some of the threads listed here:

(FAQ archive) Should I convert my IRA/401(k) to a Roth or not?
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Old 06-23-2011, 07:56 PM   #5
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Welcome, Fred. have you tried that website to see where you stand ? Merrill Edge| See Where You Stand
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