I am a 23 year old BSN student set to graduate in Dec. As soon as I land a job, one of my biggest financial obligations will be to fully fund my 401k and start using a Roth because I have been taught that if I begin early, the money that I invest can grow exponentially more than it would if I were to wait until I was 30 to start saving..
I want to know what you all do for your 401k and retirement?
I just have a few questions regarding your 401K/Retirement plans, and I would greatly appreciate all responses.
1.)How much does your employer match?
2.) How old are you? OR How old were you when you began saving?
3.) Is your 401k your only source of retirement savings, or are you investing in other options?
4.) What percentage of your pay do you contribute?
5.)What age would you like to retire?
Also any financial advice you have for a childless, new RN with very minimal financial obligations would be greatly appreciated (Hindsight is 20/20, right?)
Chris Hogan's website has a great calculator that tells you what you should be aiming to invest in each month, based on inflation, rate of return, rate you take out, and what you want your standard of living to be (in today's dollars). They were a bit more optimistic than I- I changed the inflation rate to 4%, rate of return to 10%, and left rate of take-out the same at 6%. It's a great tool and fun to play around with how much more you'd have to put in if you wanted to retire a couple of years early.
If you get raises throughout your career and keep that 15% investment figure, you're looking north of $5 million. That's a pretty nice way to retire. Can you imagine living in a mansion, driving BMW's and '69 Shelbys, and vactioning on white sandy beaches?
Trust me, I'm intimately acquainted with white, sandy beaches. They're overrated as a retirement destination. I used to work maintenance at a work-class golf resort in Puerto Rico where lots and lots of retirees went to spend their days in sun and fun. The ones who were happy were the ones who dropped in to escape the cold and busied themselves doing good work in the community, helping their neighbors, going next door to Haiti on medical missions trips, volunteering at church, or whatever. The rest of the year they were off somewhere else keeping busy too. The white sandy beach held their attention for about two weeks.
The starting a foundation for needy kids is a great idea, however. When I am rich and happy, I think I'll propose a parking scholarship to my university. Paying parking once or even twice per day has been devastating to my lunch money.
2.) How old are you? OR How old were you when you began saving?
23, just started saving a little shy of a year ago
3.) Is your 401k your only source of retirement savings, or are you investing in other options?
I contribute to our 403b and towards an IRA (Roth). I do $25 a paycheck in each. Also I do $30 a paycheck into an HSA
4.) What percentage of your pay do you contribute?
I think it ends up being somewhere between 6-10%
5.)What age would you like to retire?
Not sure
Now just to note I am not a nurse yet and only make about 23K a year. When I start as a nurse and effectively double my salary I will adjust my contributions =)
Although I'm all about being financially responsible and savvy I happened upon a message board of Dave Ramsey's teachings and personally found the climate to be a bit over zealous and many of the posts I read were odd, imo. While $5 million today spread out over 20+ years would make for a very comfortable retirement it is not going to buy mansions, BMWs, '69Shelbys, foundations and scholarships for 10 students. It will be even less impressive 40+ years from now.
Which is why I used the word "or" instead of the word "and". I also pointed out the fact that he'd have $5 million if he never got a raise or was compensated with inflation based wage increases. He'd have much more assuming he worked hard and well, and was compensated appropriately over time.
Either way, the point remains that the OP will be able to retire in comfort should he choose to start saving for his retirement at a young age.
Thank you for your post. I myself just signed a full-time position with my employer which would mean I can now start saving and contributing to a 401k.
As for your comment about waiting until you are in your 30's to start saving, not everyone can start as early but you are very smart to be thinking about this now.
Nearly all employers in the US have moved from defined benefit plans (pensions) to defined contribution plans (401k). Since your odds of having an employer-provided pension are already low and likely to go even lower, you should expect to fund your retirement mostly on your own (you will get a little from Social Security). If your employer offers a 401k plan, the best advice I can give is to fund it to the maximum extent possible.
Current IRS rules allow for a max employee tax-deferred contribution of $18k in 2015 (it was $17,500 last year). You can of course contribute more but it will be on an after-tax basis. The combined limit for total (employee + employer) 401k contributions is presently $52,000 ($56,500 if your are over 50). Employer matches vary widely but they are typically something like 50% of the employee contribution up to a max of 6% of your salary. My employer is a bit more generous and matches 75% up to a max of 8%.
You can make a determination of how much retirement savings you will need based on the age you want to retire, how much income you want in retirement and the number of years your funding will need to last. If you want to retire at age 60 with $50k per year and think you will live to 85, you nominally need to have $1.25 million available. Since the total will be comprised of your savings plus compounded interest, the actual amount you need to put aside will be less than the full $1.25m you need at age 60. This is a bit harder to estimate since you need to make assumptions about the rate of return you are likely to get. There are on-line calculators like this one from BankRate that can help with this. I did a quick calculation for you and if you want to retire at 60 - giving you 37 years to save - with $1.25 million in your retirement account, you need to put roughly $1,000 per month in your 401k, including your employer match, assuming a 5% annual return. The amount you need to contribute depends on your employer match but it's going be something on the $750 a month. YMMV and you will need to work through the numbers on your own. You will also have something from Social Security available to you, but you should consider that a minor component of your retirement nest egg.
If all of this sounds daunting, it is, especially considering that you also need to figure out which of the funds in your 401k to invest in (your employer will determine which funds will make up your 401k). Hopefully, you will have some low-cost index funds (for example, exchange-traded funds - ETF's) to choose from along with the higher-cost mutual funds. Fees are important and you need to pay attention to them because they can have a great impact on the overall rate of return. This seems unfair - you are making 100% of the investment and taking 100% of the risk but getting a lot less than 100% of the return - and it is. Welcome to modern capitalism.
In sum, save as much as you can for as long as you can. Save prudently by diversifing your investments (I can't emphasize this enough). If you need help, go to an advisor who is a fiduciary - someone who is ethically bound to make financial decisions that are in your best interests (many financial advisors are little more than salesman for mutual funds).
Specializes in Nurse Leader specializing in Labor & Delivery.
OP, can I just say how proud I am of you (with out coming across as completely condescending)? Not too many people in their early 20s give retirement a second thought.
Typically, we both invest 100% of the matching amount to our company IRAs, then an additional 3-5% on top of that, as well as trying to fully fund a Roth every year. My husband changed jobs a year ago and his company doesn't have any type of retirement, so instead he's using that money to pay off our mortgage (which we will have paid off in 10 years total), which is another thing we're using in our retirement plans (we plan to rent out our home and live abroad where COL is cheaper).
Our plan is to retire in 12 years, after our youngest has started college (I will be 53, my husband will be 56).
You should also take into consideration that retirement isn't the only thing someone your age should save for. It's generally recommended for most people to have between 3 to 6 months pay set aside for emergency purposes, i.e. sudden loss of a job, medical expenses, car repairs, etc.
Consider short term savings for future large purchases like a house, car, further education, etc. The more you can pay down at the beginning of these purchases, the more you'll save yourself in the long run.
I am 24, started contributing to my company's 403b when I started at 23. My company matches 50% of up to 7% of salary. I contribute 7%. Next month they are going to start matching up to 8%, so I will increase my contribution amount to that. This is my only retirement account, I am working on paying off student loans, paying for a house, and saving for family vacations. Retirement is important to me, and I make sure my husband and myself contribute to receive full employer benefit, but it is not the most important thing for us.
Contribute to the company plan whatever your employer will match. Then fully fund your Roth IRA. This can double as your emergency fund because you can withdraw money from it at any time, any age, with no taxes (it was already taxed) and no penalties. The only thing is You can only take out what you've put in, for example if you put in $5000 and earned $1000 on that (total value ending at $6000) you could only withdraw $5000 without penalties.
If you do all that and can still afford to save more I'd do some looking around at financial advisors and see what they say is best for you to put more money. It may be in your work plan or in something else. But you are right about the compounding years, starting now and saving regularly without fail will put you way ahead of the game.
Specializes in Oncology; medical specialty website.
Although I'm all about being financially responsible and savvy I happened upon a message board of Dave Ramsey's teachings and personally found the climate to be a bit over zealous and many of the posts I read were odd, imo. While $5 million today spread out over 20+ years would make for a very comfortable retirement it is not going to buy mansions, BMWs, '69Shelbys, foundations and scholarships for 10 students. It will be even less impressive 40+ years from now.
If that's what you think the purpose of investing is, then you missed the point.
OP, I think it's fantastic you're thinking about planning for your financial future already. I didn't get my act together until I was in my 40s; I wasted a lot of money on "stuff," and really don't have much to show for it.
If investing 15% sounds undoable, start off by contributing the least amount you need to have to get your employer to match. Then increase your contribution incrementally; I did this by increasing my contribution every two or three months. I did this until I was at 13%. I would have continued, but I became seriously ill and had to retire on disability.
The thing is, I didn't miss that money because it was out of my paycheck before I got paid. I could budget my money while knowing that my retirement was being taken care of.
Planning for retirement isn't about mansions, expensive cars, or setting up foundations. It's about having enough money to maintain your lifestyle when you're no longer working. It's about having enough money for the unexpected.
babyNP., APRN
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Chris Hogan's website has a great calculator that tells you what you should be aiming to invest in each month, based on inflation, rate of return, rate you take out, and what you want your standard of living to be (in today's dollars). They were a bit more optimistic than I- I changed the inflation rate to 4%, rate of return to 10%, and left rate of take-out the same at 6%. It's a great tool and fun to play around with how much more you'd have to put in if you wanted to retire a couple of years early.