Am I doing enough??

[billybob]

Just wanted to get your opinion...
I'm 29 years old, and I just paid off all my CC debt in December.
I was at one point unemployed for a year, and I had to cash out my 401k (only like 2500) just to live. So, I had to start all over again with a new 401k 9 months ago.

Annual salary: 68,000

Rent/month: 1,200

401k contributions: 10% (appx. 565/month)
-current balance around 5k

Savings (Emigrant Direct): 800/month
-current balance around 2400

Just wanted to get your thoughts on whether I am saving enough, etc. My current goal is building an Emergency fund / saving to buy a house within 5 or 6 years.

thanks!

[jmjj215]

Re: Am I doing enough??

Are you single? Any kids? What area of the country do you live in?

[billybob]

Re: Am I doing enough??

Single, No Kids, I live in Center City Philadelphia, PA.
1 Dog.

[Ima saver]

Re: Am I doing enough??

I think you are doing pretty well, but if your expenses are low, i would save more money if I was that young and single. You need a roth IRA too.

[billybob]

Re: Am I doing enough??

I'm really saving as much as i can while still maintaining a comfortable lifestyle. I'm not willing to sacrifice going out with my friends and other little things that make life enjoyable. My friends never understand why I am so frugal since i make more than most of them. My rent is pretty high for a single guy, but i have a big dog, and my apt. is working out well for me. I could prob. save money by moving out of the city, but I enjoy the lifestyle.

I dont understand why i need a roth IRA. Won't my 401k be enough? I did calculations and figured out that i would have over 2 million on retirement. I dunno if thats enough, but it seems like it should be. Thoughts?

It's hard to find a healthy balance between saving a substantial amount of money and still living a comfortable lifestyle. I don't want to be even MORE money-concious than i am now... I already feel like I'm a little ridiculous about it.

Thanks everyone!

[Thrifty Ray]

Re: Am I doing enough??

You are way ahead of the majority...You are saving, are careful about spending...and you have a plan.

A Roth IRA would give you an avenue of tax free retirement savings. Roth IRAs are also accessable if you ever need to dip into it for a home purchase, college or emergency...unlike traditional IRAs, you are allowed to withdraw the principal (for any reason)- penalty free at any time...(the disadvantage is that once you keep it out beyond your 60 day 'rollover window' you cant put it back)....any interest or dividends earned are tax/penalty free once your reach 59 1/2.

Yes, savings is important...debt avoidance is important, and enjoying the journey is equally important...

[CJsoccerchic]

Re: Am I doing enough??

How long have you lived in your apartment?? If you have been there awhile - you might be able to get your landlord to lower your rent by as much as 100 - I would start with 50 though - e\imagine if you saved 50 each month - that could go to your retirement fund adding 600 a year - that's just an idea. If you JUST moved in to your place, then don't bother the landlord for another year.. hee hee

[billybob]

Re: Am I doing enough??

lol- i've been here about a year, i'm just hoping they dont try to RAISE the rent! I did talk them down- they originally wanted 1250/mo., so in effect, i already am doing that!

Even though i feel like i am doing more than most people, i still feel far behind. I just dont understand how people afford houses! I was considering buying a house no-money-down style, but (correctly) decided against it. i mean, for a 200K house, my payments would be like 1500/month or something! not counting all the other expenses...

I am a recent "Convert"... for most of my twenties i spent and spent and spent, absorbing every raise into my lifestyle and not saving a dime. about 2 years ago i decided it was time to climb out of a $9,000 CC debt and get it together. So, now here i am.

I'm in the "emergency-fund-building" stage. But I also want a downpayment for a house. Another question- do i need to keep my emergency fund, aka save the downpaymet ON TOP of the emergency fund? If thats the case, I'm a long ways away... Obviously, the sooner i stop paying rent and start building equity in a home, the better...

And about the Roth IRA... do I really NEED one? Should i reduce my 401k contributions and divert into that? I really don't think i can save much extra, and I'd like to build my Emergency/House fund as quickly as possible...

Thanks again!

[sweeps]

Re: Am I doing enough??

Billybob, I echo the comments that you're doing a great job saving. But whether you're doing enough is impossible to know. How long do you plan to work? How long do you plan to live? How will your investments perform over your lifetime? What will the inflation rate be? Will you get married? Have kids? How lavish of a lifestyle will you (and your wife and kids if you get married) lead?

As you can see, there are some huge variables to consider. I personally prefer to err on the side of caution, and save a little more than I think I will need. One good way to do this is to raise your 401k contribution by 1% each year. You may not even notice the increase since it's pre-tax and will probably be offset by annual raises.

[billybob]

Re: Am I doing enough??

that is what i've been doing (was saving 9% in the 401k)...
I guess i get freaked out when i hear that statistic about "if you saved 10% at 24 and stopped contributing after 8 years, you'd have twice as much as if you saved 15% at 35 for the rest of your life"... or something like that. I guess starting over at 29 aint so bad, considering i conquered my debt.

I also HATE retirement accounts... who knows if I'll even live long enough to see it (good reason to hit the gym!!) I just dont like the idea cuz i don't feel like the money is really "mine". But, I'm contributin'...

I guess I'd like to know what other people are saving vs. their income, age, and how long they've been doing it...I figure I'm saving about 25% of my GROSS income into retirement and other savings...

What are your stats?

[Thrifty Ray]

Re: Am I doing enough??

egads...dont compare what you are doing to anyone else!! Every situation is different. If you belong to a credit union, or have one locally, you might try calling them to see if they have a financial advisor to help you weed through all your questions and decisions. I suggest a credit union because their phylosophy is based on service, not profit. You should take any info here as helpful, but not concrete...you are very much on the right track...but to fine tune your plan, please talk to a professional.

[cptacek]

Re: Am I doing enough??

Think about this with the Roth IRA. You can get your principal out if you need it down the road. So, this kind of helps your problem with saving for retirement...didn't you say "I also HATE retirement accounts... who knows if I'll even live long enough to see it "

But, say you do keep putting a large amount in your 401k, you keep living frugally, the stock market explodes, the house you buy has an oil well in back, etc. When you retire, if you don't need the money, you never have to take any out. So, if whoever you designate as your beneficiary doesn't cash it out, they only have to start taking minimum withdrawals, based on their life expectancy. So, the account has the potential to grow even though they are taking small amounts out at first.

Look at this web site...they explain it better than I do:

http://www.smartmoney.com/retirement/roth/index.cfm?story=estate&nav=TOD

I first heard about this in a book called "Parlay Your IRA into a Family Fortune" by Ed Slott and the examples in that book are astronomical. It is very powerful estate planning tool, and could set up your heirs for the rest of their lives. Of course, the tax rules have to stay the same, and who knows if that will happen.

[coffeebreak]

Re: Am I doing enough??

Is 2 million enough?

I ran your numbers through a calculator using 75% of your current income, retirement at 65, 20 years of life beyond that, 3.5% inflation and 5% interest on your savings. It says you need over 3 million to retire with an income at 75% of your current income.

Here's the calculator:

http://www.planningtips.com/cgi-bin/retire.pl

Here's what I came up with:

http://www.planningtips.com/cgi-bin/retire.pl?with=51000.00&lngt=36&lngt=20&pay2=3.5&intr=5&outt=HTML+Tables&Calculate.x=70&Calculate.y=14

In order to get to 3 million, you need to put aside $2500/month for 36 years at 5%:

http://www.bankrate.com/brm/calc/savecalc.asp

[Tree0164]

Re: Am I doing enough??

I think you are doing well. Since a goal in a few years seems to be buying a house putting that $800 in savings is good. Try to shoot for a downpayment of 20% atleast.

I don't know if your apartment is big enough for a roommate, but it maybe another option for you if you are looking to save a little bit more.

Another thought is to contribute 333 a month into a Roth IRA (that's $4000 /12) since you have the extra money. You can also use your contributions for a downpayment is you are a first time homebuyer.

Good luck! You are right on track.

[Runner]

Re: Am I doing enough??

I like to use the wealth test formula in The Millionaire Next Door book to determine how I am doing. The formula is (age x annual income)/10.