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I'm 42 and I don't think I can retire because I only have 12k in my 401k...
Old 04-03-2017, 12:57 PM   #1
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I'm 42 and I don't think I can retire because I only have 12k in my 401k...

Hello All,

I am 42 and I'm getting back on my feet, but I don't think I can retire because I only have 12k in my 401k. Here's my current financial breakdown:

Monthly income: 6080/month (gross) (I live in LA, CA and just started making this money)

Monthly expenses: around 2k a month including rent, food, insurance etc.

401K= 3% of salary with matching which is 182.00. I have $12k invested in mutual funds with Fidelity.

Can I retire in 20 years Any help or suggestions will be greatly appreciated!

Locrates
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Old 04-03-2017, 02:07 PM   #2
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Way too many variables to predict this outcome, like what your expenses will be in retirement, whether your salary goes up over 20 years, inflation, market returns, etc.


You said $6K gross, so I suppose $1500-2000 is lost to taxes. That still leaves you ~2000/month to save. Open and max out a Roth IRA to supplement your 401K. Open a regular investment account at a low fee institution like Fidelity or Vanguard for the rest.


Just save as much as you can now, and hold your expenses down as best you can. In 10 years your picture should be much better and you'll start to have a clearer view of when you might be able to retire. I'm pretty sure that someone who invests wisely and saves as much as they spend will be able to retire at some point.

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Old 04-04-2017, 04:47 PM   #3
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Your probably right BUT you can set some reasonable expectations and be in a position to eventually retire as opposed to having to work forever.

Once a year, I'd raise my contribution by an additional percent in my IRA and subsequently build a little bit of an emergency fund.

Best wishes moving forward.

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Old 04-04-2017, 05:07 PM   #4
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Welcome to the forum. You do have some catching up to do but you still have plenty of years to do so.

If your salary is $6K per month and your expenses are really only $2K, it would seem you have the ability to max out your 401K, rather than just contributing 3%. I would try to put away the full $18K per year into your 401K to begin building a sizable balance. You will need to continue to live frugally if you want to have a reasonable chance at a comfortable retirement. And hopefully some raises will come your way over the years.

Good luck and let us know how things are going for you.
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Old 04-05-2017, 12:10 AM   #5
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If you marry someone rich ,you can retire tomorrow, in the mean time make a budget,spend less than you earn, invest the rest
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Old 04-05-2017, 12:51 AM   #6
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Couple of things...

Find a way to buy a house. Yeah, I know, it's LA. Maybe check out possible rental properties (live on one side, rent out the other one, or maybe the other two-three). FHA financing is available, with low down payment, and they take the current rents into consideration for your qualifying income. Many such landlords live rent free as the other units pay the entire rent and expenses. Visit your library to learn how to be a landlord.

Pick up a side hustle/PT job. Invest (in the house, or Roth, etc.) all of the PT income. Exhausting, yes, but easier now than when you are 70 years old.

Once you are old enough to draw SS, take a look at selling your house/rental unit and moving to a lower COL area. Maybe work PT and lose the full time job-partial retirement being better than none.

It could happen-you've got 20 plus years! Good luck.
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Old 04-05-2017, 07:18 AM   #7
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Get a copy of Quicken Deluxe or higher and use the Lifetime Planner tool bundled into that software... it will give you a good idea of the answer to your question.
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Old 04-05-2017, 07:31 AM   #8
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You have twenty years. That should be enough time if you get serious now. But getting serious means doing more than minimum. Putting only 3% into a 401k is minimum. You need to be saving 20% or more.

But if you can manage that, you'll be good at age 62. I didn't get serious until about 15 years ago. Early 40s, hadn't saved squat, and faced putting 5 kids through college. Now I'm 58, looking to sneak out in about two years. Not particularly early by the standards of this forum, but earlier than I had expected.

I learned that it's not all that complicated. I have had friends who made it complicated. They spent 5 hours a day, every day, studying stocks and options and futures. They traded everything from pork bellies to emu eggs. A few of them heaped up millions. Good for them!

But that wasn't me. I simply started saving as much as I could, maxed out my 401k plus a bit on the side, diversified a little, and let time compound it. Pretty simple.

OTOH, "simple" is not the same as "easy". You will have to exercise the discipline to keep saving in good times and bad. The next 20 years will not be replete with lots of new cars and cruise vacations. Resist the temptation to panic when the market tanks. Stay focused and you'll be fine. Good luck!
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Old 04-05-2017, 07:40 AM   #9
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Originally Posted by locrates View Post
Hello All,

I am 42 and I'm getting back on my feet, but I don't think I can retire because I only have 12k in my 401k. Here's my current financial breakdown:

Monthly income: 6080/month (gross) (I live in LA, CA and just started making this money)

Monthly expenses: around 2k a month including rent, food, insurance etc.

401K= 3% of salary with matching which is 182.00. I have $12k invested in mutual funds with Fidelity.

Can I retire in 20 years Any help or suggestions will be greatly appreciated!

Locrates
Nowhere near enough information.

How much can you pack into your 401k per month today? Can you afford to max it out? How much will you receive from Social Security? Do you expect your expenses to stay the same once in retirement ($2k per month)? Do you have any other expenditures planned over the next 20 years (a house, marriage, children, etc)? Might you get an inheritance or other income?

20 years is a long time. Things change.

For now, continue to live well beneath your means. Save as much as you can. 20 years worth of savings invested well can make for a nice retirement.

You will be able to retire. It might take more than 20 years, but maybe not.
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Old 04-05-2017, 07:52 AM   #10
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Thinking about retirement and being on blogs like this is the first real step towards making it happen, keep it up.
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Old 04-05-2017, 12:32 PM   #11
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According to SS I would be getting (adjusted for inflation) 4k if I retire @62. I plan to retire in Vietnam which currently has pretty low cost of living. I don't have plans to get married anytime soon nor do I plan to have any children. Also I was wrong on my 401k. My company only has a simple IRA in which they match 3%... I figure I can save $800 a month at this point, but the question would be what to invest in. With the current market fluctuations being unstable, I'm a little bit apprehensive about investing. Again Thanks for your time!
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Old 04-05-2017, 05:54 PM   #12
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If your ship is sailing in the right direction, market fluctuations, like choppy waves on the ocean, are a nothing to worry about over the next twenty years.

Educate yourself on investing principles and methods, choose a good model, contribute as much as you can to your portfolio, and develop nerves of steel when the waves cause your boat to dip. It's normal and expected. Be confident.

Make your "plan" just about the most important thing in your life and find ways to improve on it as your knowledge and experience grows. It will reward you in the end.

Stay away from "too good to be true" offers -- they are just that. Recognize that investing for retirement is not rocket science, nor does it depend on taking big risks and gambling. Think of it like fishing in a river. There are a few people in waders out in the middle of the current angling for the big fish. The rest of us are along the banks, dipping our nets for guppies. Most days, guess who goes home with something to eat?

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Old 04-05-2017, 06:41 PM   #13
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Quote:
Originally Posted by locrates View Post
According to SS I would be getting (adjusted for inflation) 4k if I retire @62.
Are you saying SS predicts you'd get only 4k per year? I don't understand; that seems crazy low.

Your premise is that you would retire at 62, twenty years from now. Even if you never paid a dime into SS before today, if you contribute at today's rate until age 62 you should expect at least about $1000 a month...

...unless your SS gets whacked by WEP, in which case they think you have a pension coming from somewhere else, which you have not indicated in your OP. Perhaps you better run that calculator again.

Or maybe you meant 4k per month. That sounds a bit high, even for waiting till age 70. But if it were true, and you can count on inflation-adjusted 4k per month (48k per year!) that's twice what you live on today.

I wonder if you misplaced a decimal somewhere in your numbers. It's definitely worth a re-check.
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Old 04-06-2017, 09:45 AM   #14
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If you don't make a change, nothing wil change. I was in your position when I was your age. It was not too late but you must act quickly. Good luck!
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Old 04-06-2017, 10:46 AM   #15
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You state you can save $800 per month that is $9,600 per year.

If you are overly concerned about market conditions and you don’t want to get yourself in a position where you are unable to get in. I would strongly suggest you at least put 25% per year in stocks and you can put 75% by building a bond ladder, either 5 year treasuries or CD’s would be fine just.

As a suggestion I would recommend $2,400 into the ETF VTI and then $7,200 into a 5 year CD or Treasuries. Just getting started like this immediately and then educating yourself as you move forward will leave you in a much better place.

You do not need a million dollars in today’s money in order to retire at 62, a good minimum goal for you I think would be 400-500K in today’s dollars which is going to require either greater contributions or a different retirement mix to reach. With assumptions of 1% after inflation for the CD’s and 2% for the stocks I get a portfolio of $225,000 in 20 years in today’s money from a contribution of $800 per month, which at a withdrawal rate of 3.5% gives income of about 7.8K from portfolio and 18K likely from SS @62 in today’s money. This is what a very conservative retirement strategy would tend towards, to improve you’d need an increase in risk in the portfolio or more aggressive savings or a combination of the two, but you need to understand your own ability to withstand market hits to your portfolio. These calculations do not though include whatever the 401K/IRA would add to the portfolio if the match and or contributions are not included in the 800/mo you gave as savings.
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Old 04-06-2017, 11:51 AM   #16
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Quote:
Originally Posted by locrates View Post
Hello All,

I am 42 and I'm getting back on my feet, but I don't think I can retire because I only have 12k in my 401k. Here's my current financial breakdown:

Monthly income: 6080/month (gross) (I live in LA, CA and just started making this money)

Monthly expenses: around 2k a month including rent, food, insurance etc.

401K= 3% of salary with matching which is 182.00. I have $12k invested in mutual funds with Fidelity.

Can I retire in 20 years Any help or suggestions will be greatly appreciated!

Locrates
Max out your 401k ($750/paycheck)...and to get over jumping off the cliff...just change the contribution for one month...if you can survive and do survive keep it, if you find you need more money reduce but 3% is too low of a rate to retire in 20yrs.

Once you go a few months maxing 401k and find you can live on that and if you have extra put money into RothIRA. In your case you need to consider putting SOMETHING into roth so when RMD comes its not all in the 401k bucket where it gets taxed as ordinary income.
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Old 04-07-2017, 08:53 AM   #17
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I don't get the numbers. What am I missing?

6,080 - gross wages
...950 - Federal Income tax
...465 - SS and Medicare taxes
4,665 - Take home pay

2,000 - Spending
2,665 - Available for saving

I know I'm missing California income tax. That's probably a few hundred a month.

I'm still left with more than $2,000 per month for savings.
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Old 04-07-2017, 08:58 AM   #18
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Regarding SS, I get a monthly benefit between $1,200 and $1,700 if you keep working at this income, depending on your prior SS earnings.

That's the current formula for starting benefits at age 62.

Most people here would discount that for the potential of future SS reductions. A typical haircut would be 25%, leaving $850 to $1,300.
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Old 04-09-2017, 09:19 AM   #19
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Can I retire in 20 years Any help or suggestions will be greatly appreciated!

Locrates
Short answer is yes with some hard work and a little luck. I think it would be very difficult to get there on savings alone assuming your salary is not going to double anytime soon. My suggestions are to max out your ROTH IRA and look into some investment property or side business. Get a copy of Millionaire Next Door. It was one of the most inspiring books for me.

My gross earning from paychecks over my lifetime is only about $1.6 million but my current net worth is nearly 3x that. The difference is from capital appreciation. My total gains (before taxes) from financial instruments and real estate (based on current zillow.com valuation) are each greater than my lifetime of earnings.
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Old 04-09-2017, 12:10 PM   #20
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Living on $2k / month in LA is awesome. Something we did living there was commute on bike and bus and live near a lot of basic necessities. We were in Woodland Hills and was a perfect location. We drove an old beater (2002 Toyota Avalon) and paid the minimum for tags / insurance, etc. Still driving the ole gal...just won't break down on us...

We saved every penny over the past 20 years (just had our 20th) and it is a lot easier with a partner's income added in. Saving every penny, selling on Ebay, second / weekend job...it can be done. If your expenses doubled over the next 20, that's about $48k annually. Minus your SS (I'd anticipate more like $3k or less monthly, btw), you only need $12-20k to make up the difference. Maybe $500k will get you there on the minimum side. Living in Vietnam, you'll do much better, I'm sure...

Remember SS is based on 35 years of working...you get $0's on the years if you work less...
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