Post # 1
FI makes more than enough money for us to live off his income alone. I am in my internship right now but if I’m extended a job this May, I expect I’ll start around 40k. The first year or two we want to just bank my income to save for a downpayment on a house. Afterwards, he wants to put one whole year of my income into his 401k. I don’t know very much about them at all, but we are only 22 and 23 and I’m not convinced we need to put so much into it so early. Would it be better to continue paying off the house with my income on top of the monthly mortgage payments? It seems like it would get paid off so quickly. Or should we save so aggressively this early?
Post # 3
We are maxing our both of our retirement accounts ($16,500 a year each) and we are 26 and 27. The earlier the better because then you have 40 years for the gains to grow. People who wait until their 30s to save, have to save a ton more to be equivalent to people who start earlier. Paying down the mortgage should only be a priority after you are maxing out retirement accounts for both of you.
Here is a comparison in compounding from Suze Orman:
“In a perfect world, let’s say you invest $5,000 a year starting at age 25. Assuming your money grows at an annualized 6 percent, you’ll have approximately $820,000 by the time you’re 65. Now let’s suppose you don’t start investing until age 35. You’ll have to sock away about $9,800 a year to wind up with the same nest egg. (A $5,000 annual investment for 30 years will yield just $419,000.) And don’t kid yourself that it’s easy to save money as you grow older; you’ll likely have children and a mortgage tugging at your purse strings.”
Post # 4
@MrsSaltWaterTaffy: That makes sense, thanks! I didn’t know you could max them out. We will have to look at how much that is.
Post # 5
@208bride: I would suggest you both have your own individual retirement accounts. Whether it is a 401k through work or IRAs. Contribute as much as you are able to and comfortably live. Putting away more now will help you in the long run. You will have time on your side for that money to grow and get the benefits of compound interest. I don’t think you necessarily have to put away your entire salary, but 10-15% is a really good start, especially if an employer matches.
Post # 6
Start now and put as much in as you can. Max is $17.5K each and if you have an employer match at your company then don’t just put it all in his, at least put enough into yours if you go full time to get the match. Don’t start combining retirement income like that until after your married and know the laws for splitting assets like retirement savings where you live. Depending on your situation you could also look at doing ROTH IRA’s which have a different tax benefit when you retire.
There may be tax benefits to having mortgage interest. So it all depends. What’s the return on your retirement savings vs. the interest rate on the house loan? What tax bracket will you be in? Do you have any other debt? Sorry, there’s no one size fits all answer…oh and never take financial advise from strangers on the internet 🙂
Post # 7
As soon as you can, and as much as you can, especially if your employer matches. Let’s say your employer(s) over the year match an average of 2.5%. If you make 40k, 2.5% is 1k. So every year you don’t put in money for them to match, you miss out on $1,000. I’d say, at the very, very least, do whatever is matched
Post # 8
IMO you should put that income you made into YOUR 401k… Not his. I mean how nice for him should something happen in your relationship.
That being said yes you should absolutely start contributing to a 401k at your age. The younger you start the more capital gains Over time. Once you find a job and you know how much your employer matches if anything, make sure you AT LEAST maximize their match as it’s free money.
Frankly I have no idea how pp’s above afford to max out their 401ks. I couldn’t. if you can then great, if you can’t hats ok because I’m pretty sure the majority of people don’t. 10% of your income is the minimum suggested between your and your employers match.
If you can afford to max out your 401k that doesn’t mean you should. You should do the appropriate research and see if you shouldn’t diversify into other types of investments With the extra money.
Post # 9
Fi work matches up to 3%, so that’s what we’re doing. He’s currently 22.
Post # 10
You should always at LEAST put in what the company matches. That is free money! And then go from there. I firmly believe you should put as much as you can afford in your 401k. Affordable in this case means you still need cash for emergencies, savings, life, etc. Your 401k is not a liquid asset and you should not touch it under most circumstances.I currently put in 6% of my paycheck. Govt matches 100% up to 3% and 5% from 3-5% so I started at 5% and just added another percent to boost my contributions when I got a raise.
You cannot put a year’s salary into a 401k. There are maximum yearly amounts. However, you could start an IRA at your bank or invest in mutual funds (more liquid than retirement accounts). A diverse portfolio works to your advantage. I have a TSP through my job (govt) and they diversify for me, but I still have additional investments and 401ks from old jobs. You should start saving for retirement as soon as you can. I am trying to beat this into my husband’s head but he won’t listen. I would still recommend you not put your entire salary into any one thing. Retirement is important but you need liquid assets as well. Cap One 360 offers a decent savings account (online) that might be good for your down payment savings. Then you can contribute to that and a retirement account and whatever else you decide on.
Post # 11
@antisocialite: I agree, you should put in at least the company match for both of you and then work your way up from there. And as @MsJ2theZ said, you should make sure to contribute to both of your accounts evenly, not just his.
Post # 12
You are young and time is on your side. Put away money now! The power of compounding interest will amaze you.
I say save now. It doesn’t have to be one full income saved, but at least max out a Roth IRA for each of you, unless you would like to retire before the standard retirement age – then definitely start now!
First put in whatever your SO’s company will match in order to get the free matching activated. That is free money from his employer. If he doesn’t do it it’s like saying no to free money. If your job has something like this, do the same. Each person can only put $17,500 (2014 limits) into a 401k. I don’t know if you can open a 401k for yourself if you don’t have a job. There are some stipulations that it must come from earned income money.
Then I’d open two Roth IRAs one for each of you and max those out $5500 per person per year.
The money that you guys put into Roth IRAs can be taken out any time, no penalties. Note, it’s only your contributions, not the interest earned on contributions. Downside you cannot put the money back if you take it out so think of it as an exteme emergency fund.
So if possible try to do both – save for retirement and a house. One Roth IRA maxed is $458/month. There was a time when I could only put $100/month into my Roth IRA. Anything is better than nothing!
Post # 13
I once asked a TIAA-CREF person, if I had $500 to throw at retirement, should I put it in one account or split it. He suggested splitting it 50/50, but in the end it doesn’t matter because it will all be divvied 50/50 in a divorce anyway. If you each have equal account values, then most likely you just leave it alone in the divorce. This is very vague advice!
Since you are not married now, and if you used your income to max out his retirement, then you break up – you get none of it. It was like a gift you gave away. In a divorce it’s the assessts that are aquired during marriage that get to be split 50/50 – or however the couple or judge divvy it.
I did get a divorce in 2008, and by law my ex was entitled to half of it (however, he only got about 1/4th of it after some paperwork). I even set up two Roth IRAs – one for each of us – and contributed to them evenly. I convinced my ex to leave those alone since they were of equal value.
Small blip in the grand scheme of life, and I’ve more than made up for it 7years later.
Post # 14
I put 7% of my income into MY 401 and my FI puts the same into his. I don’t think that you can put your money into his. You would have to do an IRA or other kind of retirement account in order for both of you to be putting money into the same account.
I’m 23, and I would suggest that you start saving early, because that is what was suggested to me by our financial advisor at my employer. I’m glad I have invested early because the earlier you start, the more time you have to make up whatever you may lose in the stock market.
Post # 15
@208bride: This advice really depends on whether you are hired right out of school and if you are offered a position making at least 40K a year. But here goes:
1. When you start to contribute make sure you contribute to your own retirement account. I hate to be that person, but you want to make sure you have something of your own if anything were to happen to your relationship. You need to make sure you are both financially independent and capable of taking care of yourselves seperately if needed.
2. See whether the place you are hired at offers a 401-K match. If they do, then contribute at least that amount of the match because that is free money you are getting. For example: My office offers a match up to 4% of my salary. I made the decision to contribute at least 4% at all times so I would get the full benefit of the match. Since opening my account last year, I have continuously contributed 8% of my paycheck.
3. I would start the retirement account while also saving for a down payment on a home. Your FI can do the same, so that you both are contributing to your financial security through your own accounts and you both have a financial stake in your home.
4. As for the mortgage payments, see where you guys are financially before deciding that. I would not recommend sacrificing your 401-K contribution to make bigger mortgage payments, but if you do only do it for a short period of time (no more than a year at most).
5. I would start to contribute to your personal retirement fund sooner rather than later. You don’t want to be playing catch up later on in your career and you want to give your account some time to recover based off how the market is doing.
Post # 16
@208bride: You need to start your own 401(k). Of course in the end, both your retirement accounts can be used to benefit you as a couple, but this is something where you need to plan for yourself. Plus you do max out 401(k) so not sure why your FI thinks it’s smart to put everything in his or to put your entire year’s salary in it. My FI made me start my own IRA because he said you never know and I need my own retirement funds in case something happens to him. Even though I’m the named beneficiary on his 401(k).
P.S. – Never too early to start saving for retirement. My FI maxed out his 401(k) every year since his first job after college and masters. Today he has like $100k in retirement accounts (he is 32).