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Fully Vested and Planning for Retirement

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Just as I was getting my monthly budget together, the quarter was up and I was given the opportunity to invest in the company sponsored 401K plan…fully vested immediately.  The company matches up to 5% of my salary.

It has been a LONG TIME since I had a company matched 401K opportunity. So effective this week, I am investing 20% of my corporate job’s income in the 401K. I can change it at any time, but I have some catching up to do.

What do you think? I’ve picked a pretty mixed portfolio but lean toward more aggressive options.  I’m so excited.

Any tips or trips would be greatly appreciate for this as really it’s been years and I was in a VERY different place back then.

I have an idea of how this will affect my take home pay, but won’t know for sure until the end of this week when I get my first check with the deduction taken out.  Then I will post my new monthly budget.

Hope

Follow a single mom's journey to be DEBT FREE while managing this crazy life's conflicted choices with regards to kids, pets, homeschooling days and self-employment!
The sorrow and joys of this roller-coaster overwhelm her at times, but she is committed to this course.
Hope plans to dig out of debt using any resource possible including her small business EPOH, her blog and any other resource that comes to mind!

Latest posts by Hope (see all)


27 Comments

  • Reply anon |

    It’s a little hard to give advice without knowing more about your current debt/savings situation. I like Michelle Singletary (from the Washington Post) advice. I would definitely invest 5% to get the match. Then pay off any debts–including any loans from family or friends. Then work on saving about $500 for “life happens” to cover things like a car repair or something. And then work on saving 3-6 months of your salary for emergency savings. Once you’re on firmer footing, then increase the retirement savings.

  • Reply TPol |

    If you are also paying debt while saving 20% of your corporate job, that is wonderful. I am not American but I also understand that, having a Roth IRA is a great option as well. may be you can save enough to get the company match and invest some money in a Roth IRA. There is a lot of info about that over at The Simple Dollar. The owner of the blog is so much in favor of Roth IRAs that he has written several articles on it. You may want to check that out.

  • Reply Jasmine |

    I second TPol’s advice. I’d invest up to your company match. Then I’d calculate what you need monthly for the remainder of the year to max out a Roth IRA (I believe it’s currently $5500, but can’t remember). If there’s any of your 20% left after that, you can add it to your company’s 401k above your company match. I’d definitely aim for a mix though. I hear good things about Fidelity and Vanguard’s low fee index funds, but I haven’t actually opened up my own Roth IRA yet, so I don’t have any real advice about either.

  • Reply Taira |

    I do not think putting 20% of your income into the 401K is a good idea. Put in the 5% to get the max match contributed by your employer and then look into a Roth IRA or even start your own portfolio with one of the online investment companies, like Etrade or Ameritrade. If you aren’t comfortable making your own investment decisions there are still lots of brick and mortar financial adviser offices. I work for one of the worlds largest financial services firms and this is the same advice I gave to my father. If you are late to the retirement savings game, please don’t put everything you can spare into one place, you may live to regret it.

  • Reply Meg |

    First time commenter here. I am so happy for you! I think increasing your monthly 401k contribution is a great idea. And as you said – you can decrease the contribution amount if it’s a strain on the budget or you decide to look into other investment options. I am in a somewhat similar situation. My family is playing catch up after years of graduate school (into our 30s). I have found the advice at Mr. Money Mustache and Bogleheads very useful. Good luck to you!

  • Reply Angie |

    Awesome that you realize you need to catch up on retirement savings! It’s so exciting to see you through the rough times and start rebuilding.

    I’m not sure of your total financial picture. But if you still need to build back up an emergency fund, I’d consider reallocating some of the 20% 401k to a Roth IRA. Right now with the kids you are likely in a very low tax bracket. And Roth IRA contributions can be withdrawn at any time without penalty. I think a one year max in a Roth IRA which could count as your emergency fund would be a great move. Having your larger emergency fund in a Roth IRA also has the added benefit of making sure you think twice as to if you really need the money before withdrawing it.

  • Reply Jen From Boston |

    Lots of people are encouraging you to invest in a Roth IRA. That might be a good idea, but it is hard to say without knowing more about your current finances. For starters, I know the allowable contribution to a Roth begins to phase out at a certain income level. Another factor to consider is do you think you will have a higher income than you do now in retirement or lower? If higher, then tax wise a Roth would be better as any withdrawals you make will not be taxed. If lower, then a traditional IRA or 401(k) would be better as those withdrawals will be taxed at the rate you are at when you make the withdrawal.

    Another way to think about this is do you think your tax rate will be higher or lower when you retire. I put it this way because my thinking is they could raise the taxes on everyone by the time I retire, so while I might have a lower income my tax rate could be higher. So I hedge and have both types of retirement funds.

    As to the investment mix – if you’re trying to catch up aggressive might make sense. As a helpful guide you can take a look at what target retirement mutual funds hold. For example, if the Vanguard target fund for your age has 60% equity and 40% bonds, and you want to be a little more aggressive, you could invest in 65% equity and 35% bonds. You’re aggressive, but not outrageously so for your age.

  • Reply OneFamily |

    I agree with anon, without knowing your current debt/savings it’s hard to know if this is a good idea for you. I would say if you have no debt and have an emergency fund, and can afford to put away 20% of your salary , that is awesome. Otherwise, I’d max out to the company match, pay debt and get the EF taken care of first.

  • Reply Shauna |

    I am also in a trying to catch up on retirement savings portion of life putting in 20%. And while I get the idea of paying off debt before you put more than the 5% argument, I don’t think it really holds water (unless you have substantial high interest debt). For me my only debt remaining is student loans. I don’t want to give up any more compounding interest advantages for more years to pay my student loans off faster.

  • Reply Walnut |

    I think throwing a bunch of cash at retirement is a great idea. I’ve moved my contribution percentage up and down as I had other cash needs over the years, but I have never regretted a single penny that I contributed to my 401k.

  • Reply debtor |

    Hope,

    Can we get a real financial update sometime soon? You have posted about several very big and life changing updates but from a financial perspective i have no clue what’s going on with you. You were homeless for over a year and living in a tiny apartment before that and now you got a job and you can afford to put 20% of your income to retirement? how sway?

    Did you have a savings account noone here knew about? or where you not really as broke as you claimed before where you said anything would help? i’m just really confused about your situation. Do you have debt? Do you have savings? Are you living month to month? what are your fixed expenses? do you have a budget? I have no idea how all the people above are able to give advice without knowing any of this because the answers you give should greatly affect their answer.

    I feel like this has become closer to your personal blog that you used to keep and not so much a pf blog anymore. Don’t get me wrong, I like hearing about your other successes and all the stuff going on in your life but to me, this was primarily a finance blog and then everything else was icing.

    I really do hope that when you do post that budget, it is really detailed.

      • Reply Kerry |

        And if your goal is to own a home or property again, putting your money in a 401k is not a good idea because it ties it up until retirement age. With a Roth you can withdraw contributions tax free and also use it to purchase a home.

        • Reply Hope |

          I hadn’t even thought of that, but owning a home, or rather cottage would be fabulous and definitely one of my shorter-longer term goals. I will definitely keep this in mind!

    • Reply Chasity |

      I cannot agree more. We really should not try to conclude anything since we have so little information. It would be greatly helpful and appreciated to have a post about how the income and budget has drastically changed. I am so thrilled to hear your doing better financially.

      Chasity

    • Reply oldtimer |

      does anyone remember that guy that used to be on this blog that talked about how his wife was disabled? but then he bought a car but then he wasn’t working and then when people called bs on some of the things he wrote others argued but then ultimately it turned out it WAS bs. I forget his name but I remember people got quite animated about it.

      Anyway, not saying Hope is exactly the same but definitely think a lot of things don’t add up.

      • Reply Maureen |

        I remember that guy. Yes, nothing added up with him. I am going to give Hope the benefit of the doubt here pending a budget post (hopefully soon). For the better part of 2 years she lived very frugally. Now, she has a steady income (and maybe more with freelance if she kept that up) and also moved to a part of the country where the cost of living is much lower than her prior residence. Assuming the same frugality that may allow these numbers to add up.

        • Reply Hope |

          Funny you should say that…I just posted my current budget (pre-401K thoughts) as a jumping off point. Thank you for giving me the benefit of the doubt, I appreciate it.

      • Reply Hope |

        Getting a full time job in March was a game changer. Keeping all my part time jobs as well, well, it’s been a HUGE change for us over the last couple of years. Just posted my budget.

    • Reply Hope |

      Budget up! Working a full time job, a 1/2 time job and a variety of part time gigs has definitely been a financial boon for us since March. After spending the last few months getting our housing situated, I am ready to start focusing on my debt again. More to come!

  • Reply Susan |

    First-time commenter as well. I agree with those who have said that you need to have an emergency fund in place – a solid one. As a single mother with three (four?) children to support, you need at least six months worth of living expenses and more would be better. That said, you seem to be doing well – congratulations!

    • Reply Hope |

      I’ve been saving 10% of all income since March. My EF fund is healthy but not where I want it to be yet. Thank you for the encouragement!

  • Reply Megan |

    So my general retirement savings advice is this: re-evaluate every year or so. See what is working and what isn’t working. As you edge closer to retirement age, consider moving into less risky, more stable options. Someone who is going to use their money in 40 years can weather the inevitable ups and downs of the market in riskier options much more easily than someone who needs their money in 5 to 10 years.

    I think it is a great thing to do and it sounds like you have a good head on your shoulders.

  • Reply Matt |

    Awesome that you’re doing that. A lot of debt purists will tell you that you shouldn’t even focus on retirement until all your debt is paid off but I strongly disagree. Unless you’re debt will be paid off rapidly in the span of a couple years you’d be missing out on years of compounded interest. I have approximately$90k in debt but I am still contributing 6% of my paycheck to get a 4.5% company match.

  • Reply Catherine |

    I keep all my 401k in the SP index. Low/no fees and strong track record. Trying to figure out the alchemy of funds was too much for me, and I hated that I lost money on funds that didn’t do any better than the index.

    • Reply Jen From Boston |

      Yes! I like index funds because I don’t have to think about them much and the management fees are low. I especially like the target retirement funds that are made up of index funds – I don’t have to think much about the asset allocation. However, if you have a target fund it usually doesn’t make any sense to invest in other funds in addition. It defeats the purpose.

So, what do you think ?