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?)
I would say pay your regular student loan monthly payment, contribute up to the employer match for your 401k (if they put in 6% then put in 6%), and build up your emergency fund. Once the emergency fund is full then split that savings between Roth IRA and extra student loan payments (if you were saving $500 a month for your emergency fund, once that's full then put $250 extra toward student loans and $250 in a Roth). That would be my suggestion.
A Roth IRA can actually be used for an emergency fund as well so no need to delay funding a Roth! Also a Roth is great when you are young and in a lower tax bracket as it is an after tax investment, but grows completely tax free and is tax free when you use it.
Wow guys. Thanks so much. I grew up poor. My mother did an INCREDIBLE job of raising me and my brothers, but she struggled alot financially. Alot of the reason was because of poor financial decisions. No one in my family is financially literate and I have had to learn how to save (and everything else that I know) on my own. I have been doing lots of research and self teaching in regards to how to establish a budget, build my credit score, etc. I just want financial stability and the freedom to do whatever I please. I will take every single post to heart and will read this thread over and over again as well as look into the books some of you all have suggested and read yhe teachings of the financial advisors you all have told me about. The information you all have provided is invaluable. Thank you so much.
A Roth IRA can actually be used for an emergency fund as well so no need to delay funding a Roth! Also a Roth is great when you are young and in a lower tax bracket as it is an after tax investment, but grows completely tax free and is tax free when you use it.
Yes totally true (I did put that in my first post on this thread). Don't know where my mind was at today when I posted above Haha I still like to keep a bit of my emergency fund in an account that I can access the same day though too, my personal choice.
Specializes in Oncology; medical specialty website.
Thanks everyone. A lot of you have mentioned things that are extremely helpful and also have raised further questions in my mind. I will graduate with roughly 20k in student loan debts and since I will be living at home with my mother, it is my hope that at some point I can funnel a great majority of my earnings into paying off my student loans as fast as possible because I much prefer to live a debt free life. However, I'm confused as to how to approach my finances, should I focus on establishing a 6-8 months emergency plan first AND THEN focus on paying off student loans asap, AND THEN focus on the 401k since I am so young?? What order would you suggest considering I have no outstanding expenses, no other debt, and will basically continue the poor college student lifestyle even after I graduate.
What I would do is work on the emergency fund and pay off the student loans. I like to watch Suze Ormon; she suggests at least 8 months for emergency funds.
I actually had two savings accounts. One was emergency funds, and it was considered "untouchable." It was only for emergencies like major auto repair, health issues, etc. The other savings account was just for minor stuff, purchases I wanted to make, etc. Then I had the 403b which my employer matched.
Bear in mind that savings accounts earn next to nothing in interest, so only save what you need for emergencies. The sooner you can pay off your student loan, the less money they make off you in interest.
Do allow yourself some money to enjoy going out with friends/take a vaca., etc. You worked hard to get to this point; you should deserve to enjoy the fruits of your labor.
Specializes in OR, Nursing Professional Development.
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.
^^This. Every year, my insurance deductible grows. Usually not a problem, but lucky me got to start the new year with a visit to the ER. I got a bill for over $600 due to my deductible and copays. Fortunately, while I do contribute a fair amount to my retirement account, I also had a decent sized emergency fund readily available to pay the bill. Now, part of my budgeting includes repayment of that "loan" from my emergency fund so that I'm back where I started in addition to increasing my available emergency money (aiming for a full 6 months minimum).
OP, it's great that you're already planning for the future- but don't forget to plan for now. Make a budget, and ensure that it has some money allotted for "fun" things- eating out, seeing a movie, maybe some other types of purchases (I allot myself a certain amount per month for iTunes, whether it's music, movies, or apps- it's my reward to myself for making a budget and pretty much sticking to it).
Thanks everyone. A lot of you have mentioned things that are extremely helpful and also have raised further questions in my mind. I will graduate with roughly 20k in student loan debts and since I will be living at home with my mother, it is my hope that at some point I can funnel a great majority of my earnings into paying off my student loans as fast as possible because I much prefer to live a debt free life. However, I'm confused as to how to approach my finances, should I focus on establishing a 6-8 months emergency plan first AND THEN focus on paying off student loans asap, AND THEN focus on the 401k since I am so young?? What order would you suggest considering I have no outstanding expenses, no other debt, and will basically continue the poor college student lifestyle even after I graduate.
No you dont establish the emergency funds first. While that would be wise, why sit on money while paying interest on debt ?
Not to mention since youre living at home and are young (presumably healthy) and without children I dont think a huge emergency plan needs to be a top priority. I mean what kind of realistic scenario could you see occurring where you need 6-8 months of emergency funds ? And what is the probability of that happening ?
My priorities would be
1) 401k till company match
2) Student loans
3) Maxing out roth ira
4) maxing out 401k
5) emergency funds
If you were a single parent with children, or living on your own, or something with bizarre health issues thats one thing. But being in your situation I think you can easily try to get ahead instead.
Not to mention there is an annual limit on roth ira/401k contributions. I would take advantage of them, and get ahead. I started working as an RN when I was 27, and began maxing out my Roth IRA (5,500/yr) and roth 403b 17,500/yr . Get ahead and youll stay ahead.
Some other big tidbits of advice
Look at the expense ratio of your 401k options. MOST funds will STEAL 2-3% of your money a year, its absurd. The overwhelming majority of people have no idea what that means or what theyre paying and are probably getting robbed blindly every year. Vanguard is the most popular low cost index option around, but there are others.
Consider converting your 401k to a roth 401k. Not all companies offer this, but essentially it allows you to pay the taxes now and get all the money tax free when you withdraw it. (vs a traditional ira where you pay no taxes now, and pay them when you withdraw at retirement). Generally a traditional (taxes later) is the better way to go UNLESS you A) live in a state with no state income tax (then definitely go Roth), B) are in a relatively low tax bracket (in a state that nurses dont get paid a ton) C) have a pension. Any of those and you might wanna do your research. The only clearcut 100% scenario where a roth 401k is clearly better is if you plan on maxing it out annually along with a roth ira every year (17,500 a year + 5,500/yr)
Ill also add that people rambling about Dave Ramsey and making 10% + a year are on crack or stealing some major drugs from their pyxis. More realistic return rates are closer to 6-7% a year
Meaning the people who talk about "put 7% of your money away a year if youre making 50k/yr and with a 10% return a year youll have 5 million dollars !!!!!!!!" Are completely wrong, unrealistic, and crazy. Especially once you account for inflation and or fees
Specializes in OR, Nursing Professional Development.
No you dont establish the emergency funds first. While that would be wise, why sit on money while paying interest on debt ?
I, and many finance professionals, would disagree. Why? Because there's no point on paying off loans while not saving money. How are you going to pay for that $1,000+ car repair/medical bill/etc without having emergency funds? It doesn't matter how much in interest you pay off on student loans if suddenly you find yourself paying more than that on interest rates for the credit card you used to cover emergency expenses.
Thanks for clarifying is it possible you both missed the post I was quoting where someone said with 5 million dollars they would be able to purchase those things? I have no intention of doing any more than living a relatively simple life.
As for the amount 5 million will be worth in 40+ years I can only speculate but I have also read that in 1975 what was 1 million dollars is equivalent to 4.4 million now so while 5 million isn't anything to sneeze at it might not be as impressive in 40+ years as it sounds today.
I have been told that in the next 15 years someone in my salary range will need about 2 million dollars to retire. I just used CNNs calculator and it came up with 1.7 million.
I don't think you quite understand how retiring works.
You don't stockpile a mountain of gold, and just take away from it.
You build up a portfolio then use dividends and interest as supplemental income to social security (and a pension if you have one). Then after that you take a little from your stockpile as needed.
IE you have 2 million dollars. You make 2~% in dividends and interest a year (invested very conservatively since you're at retirement age, thus the low rates). Thats 40,000 a year in annual income plus 30-40k a year in social security (whatever it is at the time). Then maybe you take another 20,000 a year from your stockpile in addition to that out a year. So youre looking at around 100,000 $ a year in income as a retired person.
Also that CNN calculator is if you want to retire EARLY.
And needing 2 million to retire rather exuberant. While my number is higher than that, im also wildly aggressive when it comes to saving.
But this is from an article about roughly how much the average american has in retirement savings
Among people 55 to 64, average household retirement savings total only $12,000. For those near retirement who have savings, the average balance is $100,000 –
Im not suggesting that anyone should aim for 100k to retire. But you absolutely dont NEED 7 figures in your retirement account either.
If someone isnt/wasn't aggressive in their retirement planning, they simply have to work a little longer. By delaying your retirement from early 60s until 70~ your social security drastically increases, and you go that many more years of your nest egg growing.
So to throw out a magic number and say this is what you need, really isnt true.
I, and many finance professionals, would disagree. Why? Because there's no point on paying off loans while not saving money. How are you going to pay for that $1,000+ car repair/medical bill/etc without having emergency funds? It doesn't matter how much in interest you pay off on student loans if suddenly you find yourself paying more than that on interest rates for the credit card you used to cover emergency expenses.
This is a young healthy 23 year old with virtually no expenses. They're living at home with their parents which means there's no rent, so they dont have to worry about getting evicted. They're 23 so the odds of them racking up major medical bills is extremely small, not to mention this person is a nurse which means shes almost certainly mandated to have health insurance (and being that she works for a hospital id imagine theres a good chance that its pretty good health insurance. Ie as a nurse i pay almost nothing for my insurance, with no copays and minimal deductibles) . Car expenses isnt going to cost 8 months of emergency funds, and if it does maybe the OP shouldnt be driving a Maserati. Im not saying have no savings, but a small savings account for a healthy single 23 year old with no expenses should be more than sufficient for a while.
Not to mention as an RN how hard is OT to gobble up ? Car completely goes to crap, and 2 weeks of heavy OT and your problems are solved.
My point is statistically it is extremely unlikely for a healthy single 23 year old with minimal expenses to need such an extravagant emergency fund so urgently.
Specializes in OR, Nursing Professional Development.
This is a young healthy 23 year old with virtually no expenses. They're living at home with their parents which means there's no rent, so they dont have to worry about getting evicted. They're 23 so the odds of them racking up major medical bills is extremely small, not to mention this person is a nurse which means shes almost certainly mandated to have health insurance (and being that she works for a hospital id imagine theres a good chance that its pretty good health insurance. Ie as a nurse i pay almost nothing for my insurance, with no copays and minimal deductibles) . Car expenses isnt going to cost 8 months of emergency funds, and if it does maybe the OP shouldnt be driving a Maserati. Im not saying have no savings, but a small savings account for a healthy single 23 year old with no expenses should be more than sufficient for a while.
Not to mention as an RN how hard is OT to gobble up ? Car completely goes to crap, and 2 weeks of heavy OT and your problems are solved.
My point is statistically it is extremely unlikely for a healthy single 23 year old with minimal expenses to need such an extravagant emergency fund so urgently.
You're assuming that the parents are financially stable and thus have no worries about foreclosure and suddenly becoming homeless. You're assuming that there will be no car accidents or violent attacks against the person (trust me, there are plenty of people in my city who can tell you all about the financial costs of that). You are assuming that OT is available- many facilities are denying overtime and forcing staff to work short. Seriously, 2 weeks OT to solve money problems? What world are you living in? Yes, fine, statistically unlikely, but who wants to be that unlucky person and suddenly in a financial world of hurt?
You're assuming that the parents are financially stable and thus have no worries about foreclosure and suddenly becoming homeless. You're assuming that there will be no car accidents or violent attacks against the person (trust me, there are plenty of people in my city who can tell you all about the financial costs of that). You are assuming that OT is available- many facilities are denying overtime and forcing staff to work short. Seriously, 2 weeks OT to solve money problems? What world are you living in? Yes, fine, statistically unlikely, but who wants to be that unlucky person and suddenly in a financial world of hurt?
Im not suggesting save nothing.
But 30 grand in emergency funds for a healthy 23 year old sounds absurd to me.
2~ grand in emergency cash, plus 5,500 in a roth ira (which you can withdraw the principle penalty free in case of a real emergency) seems more than plenty for a 23 year old as far as emergency funds are concerned. Especially since in this scenario we are likely talking about over the course of a single year (maybe two), as after that this person will probably be rather financially comfortable after that. Being a young RN with minimal expenses/debt.
And depending on the state/type of facility this person is employed in (and the availability of OT) raking in 5k + in a single pay period isnt the most difficult task ever.
brandy1017, ASN, RN
2,910 Posts
A Roth IRA can actually be used for an emergency fund as well so no need to delay funding a Roth! Also a Roth is great when you are young and in a lower tax bracket as it is an after tax investment, but grows completely tax free and is tax free when you use it.