College Grad Starting work Full-time

[sstarch3]

I'm going to be starting full-time in January and the company I'm more then likely going to be working for has two ways of being able to invest.

One being a pre-tax 401k where they match 3% of my base salary at 50 cents and the second being a Pension plan which requires me to invest 3% of my base salary post tax basis.

If i fully invest in both of these, how much more should I plan to invest for retirement. I was originally looking at 20% total, but after investing in both of those I think I can invest another 10% still and then bank roll another 40% for car/house/emergency funds and live off of the rest of my salary.

Meaning after the 401k and pension investment and taxes taken out.
I would be spending 50% of my salary
I would be investing another 10%
And I would be using the other 40% for a future house/car/emergency funds

Except for the first year I will use 30% out of the 40% of that house/car/emergency funds to pay off my college loans.


Any advice on this, good idea bad idea or should I change things around to something else

[sweeps]

The pension is required, right? So no decision to be made there.

Contributing at least 3% to the 401k to earn the match is also a no-brainer. After that, contribute the maximum to a Roth IRA if you are eligible. Then if you have plenty of funds left over, max out your 401k.

Don't overfund your 401k though. If you hit the maximum annual contribution before the end of the year, you'll miss out on some of your match. Work it out so you hit the 401k cap on your final paycheck for the year.

[anonymous_saver]

Like the other poster said, after the pension and the 401(k) match, put up to the maximum allowed into a Roth IRA (I prefer Vanguard and Index funds, but there are other options as well). From there, if you have extra moey, then I would increase your 401(k) contributions. At the very lease, I would increase your contribution by 1% each time you get a pay increase.

Is there a particular reason you chose your 20% number for saving for retirement or the 50/10/40% split for your take home pay? If you chose this somewhat randomly, I would re-consider these numbers and tailer it more to your specific situation. That is, I would list out your take home pay, all monthly expenditures (particular debts, including their interest rates, and balances) and see what you have left. From there, I would make slightly more specific goals. I would save up for an emergency fund before you save specific money for cars.

How much debt do you have? What are their interest rates? I would probably not set aside extra money for cars/house/emergency fund until you have these paid off (depending on the interest rates of course).

Do you have a high interest online savings account?

[sstarch3]

I currently have 11k in debt and that debt is in unsubsidized Stafford loans. If i go all out on paying it I could pay it off in around...

4-6 months

I chose the 50/10/40 after looking at my expenses. Currently I'm a decently poor college student and I currently spend 30% of what I will be making in take home pay in the future. And I chose the 10% because I believe that was enough extra for long time savings to cover myself. If it is not I can defiantly shuffle those numbers around, but they were also not just chosen arbitrarily.

Extra reasons why I chose that 50% is not just to give me extra money to spend, I currently do not pay for my cell phone and a few other expenses will increase when I graduate.

The Pension plan is not a mandatory enrollment. If you enroll they take out 3% of your base salary post-tax, but it is not mandatory.

I appreciate the advice I'll look into how much would be maxing out a Roth IRA.


And just looked it up, so at the above numbers I would be putting 3% into 401k with 50% matching contributions, 3% into pension which is the amount required if you elect for the pension plan and the other 10% would just be enough to max out the Roth IRA. Is that sufficent for long term savings.

The pension plan is setup so that every year you will get 2.25% of your income for life and it vests after 5 years. So If I understand it correctly if you work for them for 44 years and retire at 65 then you will get 100% of your income for life. If you work for them for 10 years you will get 22% of your income for life at the age of 65.

Thank you

[sstarch3]

Just notice you said if I was eligible for a roth IRA. What is the eligibility for that? Or is it a company thing that has to be supported by my employer.

[bjl584]

Roth IRA info:

Traditional IRA and Roth IRA Contribution Limits

[sstarch3]

thanx, bj1584 I'm assuming from reading that, that the Roth IRA is available to everyone and it's not an employer supported thing.

[bjl584]

yes, it is available to anyone, but there are income limits. I think that info is in that link somewhere.

[sstarch3]

I see the 5k maximum contribution for 2008 if that's what your referring to.
Also I have a tax question, for a single individual making 50-60k a year the tax rate should be 25% correct?

I'm not entirely up on the actual tax rates.
I'm trying to calculate take home pay after taxes and investments etc.
Putting all of that into a spreadsheet so I can figure out the numbers more precisely.

[bjl584]

5K is the max contribution for 2008, but there is a max income level that you can earn to be able to have a Roth, but if you are in the 50 to 60K range, you are fine. The limit is 110K or somewhere around there.

But, Here are 2007's tax tables:

2007 Federal Tax Rate Schedules

[sstarch3]

I sat down and did a better drill down of my expenses and the % of everything.

Gross
Tax 23.9802158273381
Savings 14.9928057553957
Health Care 1.07913669064748
Saving Car
Saving House
Saving Emergency
Expenses 27.8956834532374
Total 67.9478417266187

Leaving the other 32% to be used for Car/House/Emergency
I can't clarify any of those options, since I have no intention of buying a house anytime soon and no goals for that. Along with no car buying goals until my current car dies. After my current car dies I will be spending below 10k to find a good car to drive. I currently drive a car worth about 2k that I'm hoping will last me the next 4 years at least.



Net wise my expenses are 45.7104123073296% of my take home pay
That being After Savings, Taxes and Health care since it's taken out preTax.

Expenses include
Rent
Food
Gas
Phone
Entertainment
Utilties
Car Insurance


Anything that I'm blatantly missing?


So my next question is anything seem out of wack or are my numbers and allocations ok.

Savings is maxing out Roth IRA, 3% of income into 401k being matched 50% and 3% into the Pension plan.

[sstarch3]

Thank you again bjl584
seems my taxable income is a little lower then 25%

[bjl584]

Don't forget to add in your state income tax. Those talbles are Federal tax tables

[sstarch3]

much appreciated

[sstarch3]

ok, so.... federal + state is what I originally estimated. So my above numbers are fine

[bjl584]

ok, you are good then, although it is probably not necessary to figure things out to the ten trillionth decimal place, but hey, nothing like being thorough

[sstarch3]

hehe, I just put it into google doc's spreadsheet.
So i change one number and it recalcs all of my information
So the extra decimals are no extra effort. Removing them would be more effort haha

[sstarch3]

last call for any more advice I'm up for anything Thank you for the advice so far

[InDebtInDC]

A less complicated way is to spend as little as you possibly can, contribute up to the maximum for your tax exempt retirement contributions, both traditional and IRA, and apply the remainder of your disposable income, if any, to debt and savings as appropriate.

[sstarch3]

that's a interesting take on savings. Definitely the opposite of the normal person who just spends everything and saves the rest .

I do prefer moderation though, I could live the next 40 years of my life and save everything then retire in essentially "riches", but I have no guarantee I will make it that far.

So I would prefer to save enough to live just as well as I do when I retire instead of just saving everything.

I do believe Moderation is key.