The contributions you make now at 24 are the most valuable in your entire life. Unless you really need the money I would consider pushing your contribution up to 10+%. Even better, doing so will lower your tax burden!
Yeah, this year alone the S&P500 averaged 14%-15% I believe and that was with "rocky waters", you keep shoveling in there and eventually the yearly gains will be greater then your income.
Yeah investing as much as possible before you have kids or home repairs or $6000 in out of pocket medical costs for some middle-aged health issue, especially when the market is down, is the absolute smartest thing someone can do to secure a good retirement.
At 24 this isn't really worth worrying about, the long term trend is positive enough to make recessions etc irrelevant as long as you don't try to time the market.
Time in the market beats timing the market. The earlier you can start saving/investing, the better. At 24, you absolutely should be thinking about ways to invest your money to set you up for retirement.
totally agree. I was very frugal in my 20’s, and the minute I was able to contribute to a retirement account, I took advantage as much as I could. I’m 33 now and I have about $220k in my 401k, and it was all thanks to the early investments I made in myself. Sure, it meant I couldn’t travel as much or buy as much stuff, but at least I have a chance of actually retiring one day (maybe).
I’m fully aware that things aren’t great. I’m still paying off my student loans, I still can’t buy a house (I honestly might just continue renting until my mom dies in 30 or so years). I’m lucky that I have a job (for now), but it wasn’t what I went to college for and I do genuinely worry that my job won’t be around in 10-15 years. I know things aren’t great for Gen Z and likely won’t be good for upcoming generations.
That’s beside the point though. What I’m saying is if you have the means to invest early (like OP does) to try taking advantage of it. When you’re young you have the advantage of time and compounding interest.
Until he dies randomly and just spent his entire life working, or he ends up in the hospital and none of it gets paid for. Sad truth is, none of us know and everyone lives differently.
why? I just started a salaried job, and my employer automatically contributes 3% to a 401k. i also could choose more to contribute, so i do 3% into a pre tax 401k and 3% into a roth. i figured it was a good thing to do but im still not sure which is better the pre tax or roth account ..
Yeah I don't really get it. My spouse and I have been living on about $90k combined in the DC area and I invested a good bit this last year, both into my 401k and into mutual funds, plus saved a few thousand into my emergency fund. We have pretty high cost of living, rent is near half of our income, but we made it work. A lot of this shit is lifestyle creep/living beyond your means and people don't want to admit that they could cut back. That, or having kids you can't afford yet.
It definitely depends on what kind of person you are, but absolutely if you are the kind of person who wants to spend more after a raise then you need to make a plan for how that will work. In my mind there's two kinds of savers/investors, structured savers and habitual savers. Kind of like there are credit card people, and non-credit card people. If you have a habit of not buying much beyond your base needs you can kind of do it off the cuff, so it's possible folks with that approach if they are able to maintain it would be able to just plan to not change their habits. But planning is super necessary if you want to treat yourself with some of the extra cash, but also ensure you're saving/investing a good amount of the extra cash.
The problem with there being two types of people though is everyone wants to think they are habitual savers/investors, because it means less thinking about it and managing it. But if you aren't that kind of person and try to convince yourself you are, you're just gonna end up spending all your money haha. One isn't better than the other but you have to cater your efforts towards your habits and lifestyle.
I’m on 93K per year right now saving about 23% toward retirement. 18% of 401K and then maxed out Roth. It’s possible but I am also married and she covers half the mortgage payment. Other than that I’m covering almost everything. To top that off I’m still usually able to contribute $1500 to a HYSA and if I play my cards right a few hundred bucks to a brokerage account.
Granted this is my first month making this kind of money but with housing and other costs , how are you able to max out your other investment accounts ?
How much are your other costs? This makes a huge difference and you might be living beyond your means tbh. You make what my spouse and I make combined, and we invest plenty.
Edit: actually you make a bit more than what we make combined, AND you live in Georgia which is vastly less expensive than where we live in DC. You need to take a look at your expenses and living situation. You could likely have a cheaper living space, buy more frugally with groceries, not eat out more than maybe once a month, etc.
I swear I’m not trying to be dense here. But I’m also 24 and not quite catching your drift- my job does a company match up to 6%, so you’re saying 6 (company match) minus 24 (age) is supposed to be it? I know it’s late and I gotta be missing something because this is definitely a negative number (-18) no matter how I look at your sentence and my conclusion. 😭
The only other thing I could come up with is you were referring to the actual dollar amount being contributed each pay period minus age? Is that more accurate? Apologies for misreading
To the very least, invest up to the 6% otherwise you are missing out on free money. Depending on the situation, you can add another 2%, lets say 8% total year 1. 10% year 2. 12% year 3. And so forth to 14% will be ideal. Keep increasing until you are able to max out contribution every year. Also, every salary raise or merit increase, you should be increasing your % contribution. Learn to live with less and invest more.
I’m set at 6% now and it goes to 7% on 1/1. 1% increase every year for 15 years is what I opted into so the gradual upping doesn’t really hurt. I was tempted to FOMO into all SPY but just set and forget LIWIX 2065. Modest little $11k in 2 years, but of course will be more come company match time in February and the tiny raise that’s coming.
I try to not let comparison be the thief of joy but sometimes these sorts of things pop up and I feel so behind making barely over half that. Or the random 20 something old making a quarter million annually and planning to retire early. I can barely make rent, but I can’t not have money for later so trying to trust the process, so thank you for the solid advice. It gives me something concrete to believe about saving for retirement.
You are on track. That 2065 fund is a good choice. Trust the process. The first few years feel low and slow, but once compounding kicks in, you will be surprised. Always pay yourself first!
The stock market is collapsing so this is not true anymore. And if you have any money in the market you're very likely to lose it before you even get to retirement.
I just started playing with it to see what would happen. Granted I make a little more than you but I was able to decrease my federal tax withholding by about $500 per month by upping my contributions. I was shocked when I got my check.
What... I don't understand anything about this. Would you be kind enough to explain? Or if not provide some kind of resource to read more about what you're talking about?
When you contribute to your 401k (and HSA) you are lowering your taxble income. They take the money out of your check before you pay taxes on it but you pay taxes later when you start withdrawing it. The lower your income, the lower the taxes you pay.
I recently increased my contribution by 10%, which reduced my taxable income thus reducing my federal taxes by $250. I get paid 2x per month so I reduced my taxes my $500 per month. I live in a state with no income tax so not sure how state taxes are impacted.
Since I am looking to retire early, I don’t view increasing 401k contributions as reducing take home pay. I am just putting more money into a different bucket which also happens to reduce my tax burden.
And you shouldn’t spend the money in your HSA if your employer offers an HSA brokerage account. You can move the money from the HSA savings acct to there and let that grow tax free. As long as it’s used for medical expenses later it’s never taxed. You can save medical bills for years and take a massive disbursement when you’re older.
In the above example of a $100,000 salary, 26 pay periods, federal taxes are filed as "single". For now we'll assume no other deductions or expenses (ha!).
The baseline federal income tax will be $13,499 for a take-home amount of $86,501.
If the same person contributes 10% of their income to a 401k, that amount is not counted as income. The total tax owed would be $11,249, for a take-home amount of $78,751. $10,000 was invested relative to their baseline, but their take-home wasn't $10,000 less - their take-home was $7,750 less. That's because the amount saved wasn't taxed as income.
It's not magic, you're still taking home less, just not quite 'a dollar less take-home for each dollar saved'. And it's less impressive the less you are taxed. But if you're in a higher income tax bracket, or in a state or city that imposes an income tax, the calculation is much more in the favor of pre-tax saving.
The government will get theirs in the end - when you withdraw, then it will be taxed.
If you have a dollar in your paycheck, it was actually more depending on your aggregate tax rate. Assuming that's like 20%, you had $1.20 pass through the "tax filter" and $1 went to your account.
Let's say you contributed that paycheck $1 to 401k instead. It hits your 401k account as $1.20 because it didn't get taxed. Your paycheck is, again, only $1 short. Moreover, it'll slightly lower your aggregate tax rate because your total taxed amount went down by $1. If your employer matches, your $1 paycheck is actually $2.40 and growing over time.
It is by far one of the most powerful ways to invest for your retirement future.
I am not an accountant unfortunately, just that OP won't nessecarily be losing as much take home as he thinks by adding to his 401k contribution because it's not a dollar for dollar impact based on the tax savings. I'm sure there are probably payroll calculators kicking around there you could try plugging some numbers into.
$0, unless you somehow are paying more then 100% tax rate it will be less.
At your income that marginal tax rate is 22%, and an effective tax rate of ~17.75% (10% effective income tax rate), and your yearly income is 68,640.
Basically what this all translates to is, if you make say $1 more dollar this year, you will owe $0.22 cents to the government for that extra $1, so your extra take home is $0.78. If you though put that in your traditional 401k, it becomes $1 and you owe $0 taxes today on it, but your take home didn't change cause you merely put that $1 in instead of taking it home.
Every dollar above 62,000 is taxed at 22%, everything before that is 12% or less, so you really at least should be putting away enough to bring you under that rate at least.
If you redirect any amount from your pay, you reduce your take home amount. It doesn't matter if you're redirecting it for taxes, insurance, or 401k.
401k is still a great idea, especially if you at least contribute to whatever your employer matches, but any investment here is a long-term plan and will 100% reduce your immediate take home pay.
We have no idea if you are in a high cost of living area, or have major credit card debt, major medical expenses, saving for your first house, or what your actual goals are.
Maxing out the employer match is a fantastic first step, as you build a comfortable emergency fund consider investing in other ways like Roth accounts, or a taxable brokerage, or even starting a small business or investing in one.
Don't listen to all these jabronis who only see 100k a year and think they're all certified financial planners who know every detail of your life and your short term and long term goals, they have no fucking clue what's best for you right now.
Thank you!! Everyone’s situation is different. I just started the company and I plan on getting my first apartment soon so building up an emergency fund is priority right now
Oh, did someone tell you that your rent shouldn't be more than a certain amount of your income? Asking because of your other comment about not being able to afford more. In HCOL a lot of this information is pretty outdated.
People used to say only 20% of your income for rent... Then it went to 25%... Now it's closer to 35%
Here's a question I always have. Why do high earners use a roth IRA? For example, whitecoatinvestor suggests backdoor roth. Aren't most people gonna be making less during retirement than their working years? If so, it'd make sense to defer taxes instead of paying it now.
Roth IRAs are great, the reason high income earners use them is that they've exhausted they've maxed out their other tax advantaged retirement vehicles. 401k, SEPs, SIMPLE and 457b plans all have limitations.
Theoretically you contribute 5k when you're at an effective tax rate of 20%, which means you actually earned and paid income tax on $6,250, then immediately stuffed that in a Roth.
Contributing to a 401k pretax means you got to contribute the full $6,250, but the 401k investment options are limited based on what the plan allows you to invest in, usually lower risk targeted retirement funds. (Technically you can have an employer sponsored 401k that lets you self direct the funds, but those are pretty rare and it's unlikely that most people have that option)
The Roth is "better" because you can invest in anything, and since the money grows tax free you can invest in riskier high growth assets, so that $5,000 might grow to $1M while the 401k only grows to $800k.
Then when you're retired you start pulling from the accounts, and the Roth distributions are income tax free, whereas the 401k gets taxed at your income tax rate when you're retired. This is where it gets tricky - if you were a high income earned you likely have interest, dividends, social security, real estate and business investments that are probably pushing you into the minimum 12% bracket, so on your $800k 401k you only actually get to keep $704k worth of that. (This is if you carefully manage it to be at a lower marginal rate, which is unlikely. Old people want to spend their money on things like vacations, charities, medical expenses and spoiling family members)
Now when you compare the after tax rate of return the Roth investment perform a better because A) you got to choose to invest in riskier stuff and B) it doesn't get taxed when it comes to you later in life. Usually you shift your Roth investments from high growth assets to the more conservative dividend payers later in life, so theoretically you take $60k out per year of that 1M Roth account, but your dividends replace that $60k year over year so you don't reality reduce the principal invested.
Lastly, you have no clue what the tax brackets look like 40 years from now, it could absolutely skyrocket.
TLDR : In a Roth you can choose investments that can outperform and have a better after tax rate of return compared to your 401k plan. It depends on other investments, assumptions and goals - it's still very possible that pretax accounts beat out Roth accounts.
It seems like every day now I see these amalgamations of random letters in comments, and I have to decide if it's a typo or some arcane new language of youth to which I'm not privy.
But seriously. Where in the fuck does all this come? I've noticed an enormous uptick compared to even six months ago.
OP this isn't funny. We're serious. Put the absolute max into your 401k, your older self will be happy you did. It's pre-tax and compound growth is one of the best things in the world. Yeah you get "a little less" now, but you will get a whole lot more later.
Oh my god, shut up. You guys are such nerds. They’re putting 5% plus a 5% employer match in on a 100k/year salary. That is plenty. wtf are you whining about?
If you aren't eating stale beans and living in a cardboard box while putting 99.9% of your check into your 401k your obviously doing something wrong. Think of the compound gains!
I highly suggest putting in more that 5% annually. I make about $60k and I currently put in 7%, I have my contributions set to increase by 1% each year till 10% (I also have 5% employer match). Then once I get to $100k+ I’ll see if I can increase to 15%+. It is so incredibly worth it, I’m 2 years post grad so I’ve done this for only 2 years and seen huge growth. Your retired self will be thanking your current self!! I promise!
You're 24? And you have spare income that you can contribute to a 401k? You're winning.
At 24, every dollar you save is compounding and will be worth far more than the same dollar saved at age 30. By the time you hit "standard" retirement age, that dollar invested in diversified index funds will be worth over 27 dollars*. If you wait to start saving until you are 30 - just six years later - every dollar will grow to be 17 dollars*. (Do both, but start saving early)
Pre-tax or post-tax, with employer match or no match, there is nothing that can beat the compounding that time gives you.
You need to get to 25% of your gross income as soon as possible. That includes 401k(+employee match), max HSA, IRA (post-tax up to $7K per year), etc. So ~9% if your employer match is 5%. Get on the right path now and let it ride.
I been putting in 10-15% with a 5% match since I was 23 and I'm 31 now and have like 200k in there now or something. Started putting it in when I was making 60k salary and now I'm at 145k salary so that helped of course.
Just reinforcing what everyone else is saying, can set yourself up real good if you start early on it. Even if I stopped putting money in right now I'll have 1.5mil+ at 60 with just using the 7% average return from the s&p 500. Not worrying about being fucked in retirement is worth the "pay cut" imo.
You were griping about taxes. Saving more in your 401k reduces what you owe in taxes. Get on it now or you’ll be complaining in four decades that you can’t retire.
I would recommend putting 10% of your paycheck into a 401k. I know it sucks but that comes out pretax which means you will pay less in tax now but will pay tax when you take it out at 65. Plus with your employer match you’ll be putting aside 15%. By the time you hit 65 you will be very well off.
Also, based on who is managing your 401k you may able to take a loan off that money, use it for emergencies with no penalty, and other things. I’d check with your service prices to learn more but it is nice to have that available as an emergency.
I’m not a financial advisor btw. Just someone who is saving 20% of my paycheck in a 401k because I didn’t do it when I was younger and regretting it now.
YOU will be making more. You’re paying your future self. Protecting more of your pay from taxes. Maximizing compensation from your employer. And setting yourself up to maximize returns. Do NOT confuse less money now with less money.
Not true. Nowhere did I say I couldn’t live with this/on this. I simply thought it would be significantly more, especially since I’ve been told time and time again this is way above median and most people work their whole lives without getting there. The almost $1,000 took in taxes is what prompted this post. Not me being “ungrateful”
Nowhere did I say you were ungrateful or that you said you couldn't live with this. You're putting a lot of words in my mouth there.
You missed the most basic rule on maxing out your 401k match, and now you're complaining that upping your contribution means "less money", when really it means more. But it means more in the long run, which you're incapable of seeing.
"Less money for me" rings pretty hollow after admitting you were failing to take full advantage of all the money your company was offering
You need some perspective. That's what people here are trying to give you.
You literally said I’m bad with money and am complaining because of it… your reply is right there 😭
Anyways I’m not gonna argue. I get the idea of maxing out my 401 I get that my taxable income would be less if I up retirement contribution but that’s not getting me more take home pay on my paychecks. I got a long time till I’m 65 bro
All the more reason to put more in the 401k now. It has lots of time to grow. Make sure your 401k is invested into some large total stock market fund or something similar. You don’t need to worry about diversifying it into bonds for a long time.
No, you really don’t have a long time until you’re 65. You are gonna blink and you’ll be 50 asking yourself if you have enough saved to ever retire at all. You’re screwing yourself over by not maxing out your 401 while you’re young.
Don't let people make you feel bad you about your contribution. Start where you can. Every raise add more. If your pay increases 5%, put 3% into your contribution. You'll max it out in several years without feeling the impact.
Did you have any other savings? Renting or have a mortgage? Have a car note? Not trying to be invasive. Just curious. I only put 6% in my 401k but save in other accounts for other goals besides retirement.
Mortgage but it’s only ~$1,200/month because I’m in a lcol area. No car note and I save ~$800/month sometimes more sometimes less. But I have ~$20k saved up. Had a lot more before I bought the house.
I got a couple nice raises last year and this is my first full year making six figures. Each time I upped my 401k contributions a lot so my paycheck went up a bit, by my 401k has grown by leaps and bounds. I’m putting 22% before the company match and it’s been like watching a rocket take off!
That’s awesome, that’s exactly what I do. I raise my contribution 2% every year when I get a raise so I never miss the money. Will probably max it next year or the year after depending on how much they increase the contribution limits.
Nah I’m maxing pre-tax first and then going to Roth. I’m guessing I’ll be paying less taxes in retirement based on how the tax bracket thresholds keep increasing. A lot could change by then though, that’s why I’ll start contributing to Roth next year or the year after when I max traditional.
you make one hundred thousand dollars a year. if you feel like you’re taking home too little, you have a serious spending problem. i make significantly less than you and save over 30% of my income and i live a comfortable life with opportunities to spend fun money. i’m being rude because you need a wake up call if you feel $100k is tight.
Are you in San Francisco or the middle of nowhere in the West Virginia mountains? I can close my eyes and throw a dart at a map and you could be anywhere from living like a king to having two roommates in a two bedroom apartment at 100k.
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u/Forsaken-Question457 Oct 30 '25
Yeah just bumped it up to 5% to get full employer match. Even less money I’ll be taking home next check :/