Hi! 25 y/o new grad in Cali

[maradori]

Hiya everyone. Just found out about this site through random Googling about management expense ratios.

I'll be 25 next month. I currently make $65k gross salary in a dotcom startup. I have no debts, but starting next year, my parents are going to dump the $1700/mon x 15 year property tax on my shoulders plus the 6k/yr property tax.

I currently have no retirement savings. Part of my employment benefits include stock options but none have currently vested (and it will be quite a few years before they fully vest). My company has 401k but no matching.

It would be nice if I could retire at 50? 55? I know that as I age, my brain might not be as quick as my brain now ... so I'm worried that once I hit my 50s, that I might be unemployable (especially in this field!!). I think it would be a "safer" choice to have the option to retire early in case I do become unemployable (of course, if I hit 50 and can still work, I'd continue working -- but it's nice to know that I can retire at any time should I choose to)

...

I plan to max out my $5k/yr Roth IRA contributions and my current thinking is to contribute to a Roth 401k until I make enough salary to get bumped up to the next tax bracket and then re-evaluate my options then (perhaps contribute enough to a traditional 401k to bring me back down to the 25% federal tax bracket and Roth the rest?)

A rough calculation (am I even calculating this right?) suggests...
65k * 0.7 (assume combined 30% fed + state income tax) = 45500
45500 - (12 x 1700 mortgage) - 6k (property tax) = 19100
19100 - 5k Roth IRA = $14,100/yr left over = 1175/mon

...

I'm wondering if the community can help me suggest what is a good amount to contribute to my Roth 401k?

Thanks!!

 

[ronocnikral]

Hiya everyone. Just found out about this site through random Googling about management expense ratios.

I'll be 25 next month. I currently make $65k gross salary in a dotcom startup. I have no debts, but starting next year, my parents are going to dump the $1700/mon x 15 year property tax on my shoulders plus the 6k/yr property tax.

I currently have no retirement savings. Part of my employment benefits include stock options but none have currently vested (and it will be quite a few years before they fully vest). My company has 401k but no matching.

It would be nice if I could retire at 50? 55? I know that as I age, my brain might not be as quick as my brain now ... so I'm worried that once I hit my 50s, that I might be unemployable (especially in this field!!). I think it would be a "safer" choice to have the option to retire early in case I do become unemployable (of course, if I hit 50 and can still work, I'd continue working -- but it's nice to know that I can retire at any time should I choose to)

...

I plan to max out my $5k/yr Roth IRA contributions and my current thinking is to contribute to a Roth 401k until I make enough salary to get bumped up to the next tax bracket and then re-evaluate my options then (perhaps contribute enough to a traditional 401k to bring me back down to the 25% federal tax bracket and Roth the rest?)

A rough calculation (am I even calculating this right?) suggests...
65k * 0.7 (assume combined 30% fed + state income tax) = 45500
45500 - (12 x 1700 mortgage) - 6k (property tax) = 19100
19100 - 5k Roth IRA = $14,100/yr left over = 1175/mon

...

I'm wondering if the community can help me suggest what is a good amount to contribute to my Roth 401k?

Thanks!!

welcome. how long have you been living rent free? and what is your emergency fund looking like? my biggest concern if i were you would be loosing my job.

while 30% state & fed tax may be a little high (?) - especially after your homeowners tax deduction - i will venture out and say, you cannot afford this house. well, you can, but you will be house poor (by my definition). i'm not sure what the arrangement is with your parents, but if you have both paid on the house and it sells one day, who gets what? that's essentially a $2200/month payment with P&I + tax (who's paying the insurance policy?).

you can contribute to a ROTH if you like, but i would be building a 1 year emergency fund fast if i were you. if you have $5000 laying around april 14th, 2012 then you can contribute to a ROTH. i'm sure many have differing opinions and will mention you can always get your contributions out of the roth with penalty & taxes...you're also risking capital for the long term, so it may not all be there if you need it.

good luck. and welcome.

 

[Coach]

Hi maradori, and welcome to the forum!

You share a common goal with many of us -- financial independence -- that gives you the opportunity to retire early if you want to. Or as we put it, FIRE.

It's great you're thinking about this at your age, but it's awfully hard to make reasonable forecasts over 25 or 30 years. But you often see a recommendation to contribute 15 per cent of your income to retirement, and that might be a reasonable goal for you as a first iteration. Typically it's hard to hit that early in a career, but it's a starting point.

I'm curious about the mortgage payment and property tax that your parents are "dumping" on you. What's the story behind that, if you don't mind saying?

Again, welcome!

Coach

 

[maradori]

Hi, thanks for the fast responses!

@ronocnikral:

I've been living rent-free since forever. My parents are under the thinking that it's always better to own than rent no matter what (to take it further, they want me to buy a second house to rent it out for income -_-), hence why we purchased a house here in the SF bay area.

My emergency fund is just as empty as my retirement fund. I'm not (too) afraid of unemployment (yet), but I definitely want my retirement $ to start compounding as soon as possible.

The 30% rate is approximately how much my paycheques are lost to tax. I haven't factored in the homeowner tax deduction into that rate. My parents will pay the insurance (I'm only paying mortgage + property tax). The bright side to all this is that the house will be all mine mine mine mine mine!

@Coach

My parents have limited fluency in English, so they're stuck with low-paying unskilled labour jobs. Currently, both parents are each working two jobs, so they make more money than me. Now that I'm working, they each plan to quit one of them so they have more time to rest. Once they do that, my income will be greater than their combined income and at that point, I'll need as many tax deductions as I can get (or is our logic flawed??) -- hence, the "dumping" of the mortgage + property tax on me.

....

Thanks for your responses

... ugh 15% so much x_x;;;

 

[Texas Proud]

I will be a bit harsh.... but you need to get off the teet of your parents ASAP... if your ONE salary is more than their combined salaries you are taking advantage of their generosity to the detriment of them... (this means pay all your bills, including insurance)....

It does sound like you have to much house for your paycheck... can you get it refied and pay it off over 30 years... that would cut your payments down to a more reasonable amount... probably to the $1100 range.. maybe a bit higher...

So... $1100X12 plus $6k is about $20K or 31% of your gross... right in the range of 'affordable'....


Do NOT put money in your 401(k) if you do not get matching... do the ROTH until your tax bracket gets to the 28% range...

 

[aaronc879]

You don't specify but it sounds like you are living in the same house as your parents. Is this the case? Are you now paying the mortgage on a house that is in their names. That doesn't sound like a good idea to me at all.

 

[jayc]

It would be nice if I could retire at 50? 55? I know that as I age, my brain might not be as quick as my brain now ... so I'm worried that once I hit my 50s, that I might be unemployable (especially in this field!!). I think it would be a "safer" choice to have the option to retire early in case I do become unemployable (of course, if I hit 50 and can still work, I'd continue working -- but it's nice to know that I can retire at any time should I choose to)

Thanks!!

I am over 50 so all of this seems a little confusing, but I will muddle through with an answer.

Contribute the max to your 401K each year. Do you have my teeth?