Retirement investment advice for early-mid 20 year olds

FedRetired50

Recycles dryer sheets
Joined
Feb 14, 2023
Messages
191
Location
Maryland
I've always actively engaged my now-grown daughters on financial topics. Basic stuff when they were younger, like earning their allowance and then saving/budgeting. When they were still in high school I occasionally gave them hour-long talks on more in-depth topics.

Now they are in their early-mid 20s and my youngest is already making almost 6 figures (!). I made sure she signed up for her company's 401k plus she's been saving some outside of that. She clearly knows my mantra "money gives you options"; she saw me retire early and wants to do the same. She mentioned she was about to meet with a financial advisor and I had an unexpectantly visceral reaction to that - apparently I didn't go deep enough on investing or it didn't sink in. I asked if I could give her another talk, which has now grown to include her boyfriend, her sister, and my fiancé.

Over my career my investment method was to put at least 10% + 5% employer match into a standard retirement account, and let it ride with a spread of small/mid/large cap, and a little in international (which I later stopped due to so much exposure to Japan). I didn't have access to Roth for 18 years, and once it was available I didn't use it. I dabbled a bit with stocks in a post-tax investment account with good results. I keep thinking about what I would have done differently with my investments, starting at 22, knowing what I know now and with what is available now. I wish I had put some in Roth and some in a post-tax investment account - dedicated for retirement - to give me more options.

I have a nice list of topics so far and more keep popping in my head every time I get in the shower. I need to stop taking showers, or I'm going to overload them with info, LOL. So, my question. I want the collective mind's input on the following suggestion on where to stash one's money, which will balance taxes and provide options when the time comes to start spending it. This is assuming an employer match only on a regular 401k up to 5%, and basically the same tax brackets during and post employment. A future pension is in the mix, and hopefully most of Social Security too.

1. 6 months living expenses, money market

2. 401k 5% employee + 5% match

3. 401k Roth 5% employee

4. Investment account 5%, Boglehead method, light on bonds, mostly total US or total world (this is slated for retirement)

5. Investment account, a mix of future savings (Boglehead again) and maybe play money to dabble in the markets, if desired

If retirement happens before age 55 then they can pull Roth contributions tax free, do SEPP/72t without penalty, and pull from the investment account at LTCG rate. Near-term $10k can come from the 401k towards a house down payment without penalty. Thoughts?
 
Last edited:
I would change 4 to 5% Investment Account.

The rest 4, 5 and the last paragraph are not necessary in my opinion. You should be giving a guide, not specifics.

I would print the guide and hand it to them.

Lastly, don’t forget to mention they should spend some of their money and enjoy their vacations - at least two weeks a year.
 
I wish someone would have coached me. I did do the 401(k) through Megacorp (with a match - usually) and I was always a good saver. But I didn't learn much about investing until I'd made all my own mistakes - especially the mistake of trusting someone else with MY money.
 
I would change 4 to 5% Investment Account.

The rest 4, 5 and the last paragraph are not necessary in my opinion. You should be giving a guide, not specifics.

I would print the guide and hand it to them.

Lastly, don’t forget to mention they should spend some of their money and enjoy their vacations - at least two weeks a year.
Yes, it's important to make life a journey and not just a destination.
 
I would include a Roth IRA in that list.
I agree. In fact, as soon as one gets a company's full 401(k) match, a Roth is the next critical thing on "the list" IMHO but YMMV.
 
I highly recommend gifting a copy of JL Collins' Simple Path to Wealth. It's almost perfect as defined as something I would write if I were an author.

One piece of advice to consider but market and personality specific, is to consider/encourage holding and renting out former home as an investment when they move "up" or even out if not too far to manage. -not for everyone but a lot of wealth is made this way.
 
If they are dead set on an FA..have them do the experiment. Give half to the manager, and they self manage the other half themselves. See which one wins out over some years. They will learn that an FA doesn't actually "teach" them much.

I'm sure you did a great job advising, but sounds like they are still unsure. You wont be able to convince them directly I think based on that. This is a lesson they need to feel for themselves I guess.

Early Roth-should be a priority.

PWF
 
I highly recommend gifting a copy of JL Collins' Simple Path to Wealth. It's almost perfect as defined as something I would write if I were an author.

One piece of advice to consider but market and personality specific, is to consider/encourage holding and renting out former home as an investment when they move "up" or even out if not too far to manage. -not for everyone but a lot of wealth is made this way.
I agree it's a potential high risk/high reward gambit. We did it - just to hold a place for ourselves in our adopted state. We didn't fare that well as we didn't know what we were doing and (worst of all) we couldn't seem to raise rents as appropriate because the two "little old ladies" in the apartment were just too special. It takes a certain personality to be a land lord. We were not fit for the j*b. The good news is that we never had any "bad" renters who tore the place up. It's a bit of a crap shoot.
 
Last edited:
Regarding the Financial Advisor, I would tread lightly - asking if they are managing some or all of their assets and ask what their fee is. Also mention that nobody on this planet cares more about your money than you. If you want to work with a FA, that’s OK but ask lots of questions and have them be a guide, so you can do it yourself in a few years.
 
6 months living expenses, money market

It might be smart to put some of that in a Roth IRA. I wish I had done that. As I understand it, you can pull the capital without a penalty (but not the gains). Somebody please correct me if I'm wrong.

Also, you certainly want to get matching funds for retirement accounts, but I really think I overdid the savings in my traditional retirement accounts. For weird reasons peculiar to me, it's turning out that Roth accounts probably aren't good for me (or my heirs), but otherwise I would be wishing that I had done more Roth (especially backdoor Roth) and maybe even some more non-retirement.

Lastly, don’t forget to mention they should spend some of their money and enjoy their vacations - at least two weeks a year.
ITA. They don't need to be luxury vacations, especially if that's not their thing, but breathers to enjoy life and avoid burn out. And not just vacations. There are just certain things that it makes sense to spend money on for short-term and long-term quality of life. Healthy food, etc. Penny wise and pound foolish and all that.
 
I see the OP mentioned 401k Roth 5% employee. There are new rules effective 1/1/25 that the company can now make contributions to 401k Roth accounts. With the changes signed into law in 2022, 401k Roth’s appear to work the same as Roth IRA’s.
 
Just read below summary of the book and it does sound like a great one for this situation. Covers a lot of important topics. That summary is so good I wish we could use it here and make a sticky out of it.

Here is another good book summary with great investment tips from John Bogles book. Hope it's ok to just share the link as I think most here know of the book. I think these summaries would make good talking points in your discussions.

 
1. 6 months living expenses, money market

2. 401k 5% employee + 5% match

3. 401k Roth 5% employee

4. Investment account 5%, Boglehead method, light on bonds, mostly total US or total world (this is slated for retirement)

5. Investment account, a mix of future savings (Boglehead again) and maybe play money to dabble in the markets, if desired

If retirement happens before age 55 then they can pull Roth contributions tax free, do SEPP/72t without penalty, and pull from the investment account at LTCG rate. Near-term $10k can come from the 401k towards a house down payment without penalty. Thoughts?
I think six months of expenses in money market / cash is too much. But it really depends on the job security and career.

Get the maximum company match, then maximize Roth contributions, then maximum deductible contributions, then save some in the brokerage. When you start, this seems impossible, but after a decade of professional type work it's certainly plausible.

I took a more holistic approach in a thread I made a while ago:

 
I wish someone would have coached me. I did do the 401(k) through Megacorp (with a match - usually) and I was always a good saver. But I didn't learn much about investing until I'd made all my own mistakes - especially the mistake of trusting someone else with MY money.
Sounds like me. I even almost got an investment advisor, the one my Dad used/uses, but the guy would never return my phone calls! Disaster averted.
 
I agree. In fact, as soon as one gets a company's full 401(k) match, a Roth is the next critical thing on "the list" IMHO but YMMV.
And they will, as a 401k Roth. Looking forward to hearing the advantages of Roth IRA, instead.
 
I think the 401k Roth limits you to the funds offered by the employer plan. My Roth IRA is just a brokerage account with the whole trading universe available.
 
The rest 4, 5 and the last paragraph are not necessary in my opinion. You should be giving a guide, not specifics.
 
Back
Top Bottom