> Max out our 401ks
If there's any 20-somethings here that make 6 figures, listen carefully:
1. Max out your 401k, and invest all of it in a target date retirement fund. (Some companies are douches and will assign you mostly their own stock, which when it tanks, there goes your retirement... so check your allocation)
2. Get an HSA and max that out. Invest it all in a target date retirement fund. Do not use any of it, pay for medical expenses with cash and save your receipts. Get reimbursed for the receipts when you retire.
3. Contribute to an IRA and max it out (or backdoor roth when you make enough that that's necessary). Invest it all in a target date retirement fund.
4. Keep 6-12 months of living expenses in a high yield savings account.
> you can retire at 45
Kinda hard to do that when you've locked all your money up in a retirement vehicle that doesn't let you withdraw until age 59.5.
It takes planning but you can get your money out early via SEPP 72t disbursements and Roth conversion ladders. You can also just straight up pay the early withdrawal penalty. Depending on your effective tax brackets pre/post retirement - you may very well still come out ahead compared to a non-tax advantaged account.
How do you plan that? Particularly for an age 45 retirement?
If you’re the kind of saver that’s on target for an early retirement thru high retirement savings then you should have a pretty good idea of what your annual expenses are. Throw in a buffer + known liabilities (roof needs replacing, aging car, health issues, etc).
There’s a few methods here - and it’s going to depend on your mix of retirement accounts (ROTH vs Trad vs HSA vs non-tax advantaged). There’s lots of tools to help plan scenarios - I particularly like ProjectionLab. I would also recommend hiring a professional that can assist in the planning and especially taxes during early retirement.
For SEPP 72T you need to make similar withdrawals every year for at least 5 years or until you hit 59.5 of age. My plan is a mix of SEPP 72T + non-tax advantaged accounts for 5 years. During those 5 years I will also be making ROTH conversions from my Trad accounts. Once the 5 years are up - I will continue my ROTH conversions but can finally start withdrawing the money I converted 5 years ago (this is a ROTH conversion ladder).
I was a bit of a late bloomer and spent my 20s working my way into tech - so I won’t retire at 45 - but am on target for 50ish.
Yeah exactly. This is what makes RRSPs/401ks the absolute worst place to park your money. You are locking away your funds, and deferring taxes to 1) the stage in your life you probably want to pay the least tax possible, and 2) a time when the tax rate will probably be higher than it is now (after all, tax rates pretty much exclusively go up).
If your employer offers a match, you should absolutely contribute up to the maximum match (it's free money after all), but not a penny more IMO. There are much, much better vehicles for parking your money than retirement funds.
My friend, I'm not sure you've thought through this all the way.
Historically, tax rates have gone down over time, not up. Especially in recent history.
You do pay a reduced tax in retirement because you're able to blend your income. You defer taxes on the 401k until requirement, but you pre-pay taxes on a mega backdoor/roth, so if you need 100k of income in retirement you pull 50k from 401k and 50k on the roth and only pay taxes on half of it, putting you in a lower bracket.
Having the pretax money to grow before paying taxes on it is greater than having post tax money and having less to compound.
The alternative to tax advantaged places to park your money for retirement is strictly worse than non-tax advantaged. In a 401k you pay taxes only in retirement, for roth's you pay taxes only with your paycheck. In a brokerage, you pay taxes at your paycheck and then you pay taxes on withdraw for your cost basis.
A SEPP plan let's you get the money early and penalty-free from a 401k and an IRA. And the saved medical receipts let you take some money out of a HSA at any point for reimbursement, also penalty-free.
Even with this strategy, you're not retiring at 45 unless you are frugal, have cheap hobbies, and never have kids or a non-working spouse. Also take care that you don't have any parents, siblings, or extended family that come to rely on you. Also don't forget expect to live anywhere even remotely expensive, unless you like camping.
My wife and I have kids and live on a single income, and we're on track to retire in between ages 45 and 50.
We live in Ohio, and I suppose we would qualify as frugal and having cheap hobbies. But I certainly don't feel like we're missing out on a lot.
We also set aside over $1,000 a month for giving, with some of it going to various individuals and organizations automatically and some of it just waiting for when we see a need.
You're not wrong, a family is more expensive. But if both parents pull the same (or similar) salary, it is enough to still retire at 45. Requires using more tax-advantaged plans to play for college, and may not work well in expensive cities.
Re: cheap hobbies, I used to date a public school teacher. She would save to go on guided trips to Antarctica, Peru, the Galapagos, New Zealand. You can live an amazing life if you plan for it.
> non-working spouse
Does that mystical creature still exist? Or is it perhaps more likely if one of the pair has a high yield income?
The median household income in the US is $83,730 [1] - half of households are on less than that.
If you earn $100k and are willing to have the median lifestyle, and you can find a spouse that's willing, then the numbers work just fine.
Challenges include lifestyle inflation; housing costs if your six-figure job is in an expensive area; and finding a partner who's willing to be put in what is often a vulnerable and low-status position.
[1] https://fred.stlouisfed.org/series/MEHOINUSA672N
I know multiple coworkers in their late 30s to mid 40s, none of their wives work.
Not sure why this was downvoted; it doesn't say you shouldn't do all those things, only that they're no guarantee you'll be able to retire at 45.
Kind of crazy the negative feedback you’re getting from this. This is extremely valuable guidance for a fresh college grad into a good paying job.
What does any of this mean? Greetings from Europe.
I feel like this is a bit snarky, it simply means plan for your retirement and invest in your own future, take advantage of government / employer backed savings plans. Plenty of these exist over here. Don't waste your money.
Everything is not perfect in the singular country of Europe, I sure as hell don't want to be relying on only what the state decides it can give me in my old age.
All is fine in Switzerland, there is state part (1st pillar) where people give blindly and then during retirement get some payment; and then mandatory private part where employer contributes too, often the same amount (2nd pillar) which is the most important one. Also another optional private 3a pillar which otherwise behaves like 2nd. Obviously all of this is pre-tax, 2nd and 3rd can be used for purchasing primary property or start business etc. State is always a miserable manager of longterm funds. One can pick investment profile for those savings, or is voted by employees' assembly in case of 2nd.
No complaints, I know how much I saved, projections on how my pension will look like if I retire in year X, Y or Z. I don't expect more from a good social security system if one wants more it should be on them.
So far plan is retiring at 60, already I work on 90% and thus sporting 10 weeks of paid vacations yearly. That way, I don't thread the knife edge of burnout, in contrary and have plenty of time to unwind, have adventures (just came back from 2 weeks road trip in Dominican republic) and spend literal months on vacations with my kids and wife. There is no salary achievable in our field that would force me to consider it a better setup and instead working hard... these are best years of my remaining life and waste them just working would be tremendously stupid and shortsighted. To retire in 45, seeing my skills atrophied and being at the mercy of things like inflation... doesn't sound that great.
So there is another perspective to just chasing biggest paycheck at all costs.
At this point I am losing faith in my (european) pension system; state pensions will get emptied out for the boomer generation currently enjoying the returns of the good times, private / employer paid for pensions will likely get raided and tanked by big investors / capitalism. I don't feel like I can trust or rely on them for when I might be able to retire in my 70's.
(that's the other thing, state pension age is being pushed back as life expectancy increases. Not for the main boomer generation of course, they were already retired when the age started to creep up or only had to work a few months longer)
Retirement and health savings accounts.
they're pointing out that the US is insanely stupid when it comes to healthcare and retirement. the stuff we do in this country is so much extra work/effort/cost and all of it comes at the worker's cost.
they were being sarcastic.
My reading was that nothing of that applies in Europe. No earning 6 figures, no way to invest pre-tax or in any other tax advantaged way, no way to optimize healthcare costs, early retirement unlikely.
UK has the state pension which comes from NI (National Insurance) contributions which in a way acts like a Defined Benefit pension in that you work for X number of years and get state pension of Y in return(currently adjusted for inflation, wage growth, or 2.5% annually, called the 'triple lock'). Not based on income so you don't get a massive state pension by earning 6+ figures.
Then more recently (as in, as of around 2012 and up to 2018) we got auto-enrollment into private pensions, which are more like Defined Contribution (DC). Employer has to pay a percentage into the pot and so do you. Usually 5% employee and 3% employer by default but many will offer better (or contribution matching) as a perk. I think this is probably the same or similar to the 401k in US terms. The employer chooses the pension provider but you need to proactively switch to a high risk scheme to see any growth from it.
At a certain point the tax rebate from the government doesn't cover your whole income so you have to file a tax return to get the rest of the rebate. You can instead choose to 'salary sacrifice' which means you are lowering your income on paper but the sacrifice is put directly into pension (or otherwise can be used to get a car on lease or a bicycle via another scheme). Salary sacrifice is used by a lot of higher earners to bring their gross income down in order to avoid being cut off on certain benefits like child-care.
After all that you have SIPP (Self-Invested Personal Pension) which gives you more control over what you can invest it. Not just stocks, ETFs, and all that, but can also be commercial property (so the pension itself owns that asset). This gets the same tax treatment for pensions.
Finally there is the ISA and LISA. The first is a savings account where any interest or capital gain is free of tax, the second gets a 25% boost by the government to help buy a house or flat, but you can only use that money for a mortgage deposit.
Most people won't see all that much from their auto-enrollment given they could just opt-out to get the extra cash in their paycheque (especially when a low earner), or might not know to switch to the high risk fund, so the state pension and other benefits for OAPs will be there still. Those with more disposable income or a long term view (e.g. doing FIRE) are likely to max out the various vehicles available to them but at that point you're gonna be earning too much to care.
No need to optimise healthcare costs or any of that unless you want to go private.
Retirement accounts are a thing in Europe though. In Poland for example there's IKE and IKZE. IKE is a bit simpler of the two. If you hold your money on IKE until you're 60 you're not paying taxes on that. Can invest in stocks or bonds.
Yes, as always it depends on the country. Germany and a bunch of others have nothing except completely useless insurance/capital guaranteed options.
For investments, you invest post-tax and pay capital gains when withdrawing.
There are options to save extra for retirement, if you take a private pension or a bank account that you can't withdraw from until retirement for example; in that case, you don't pay wealth tax and only pay taxes when it starts paying out. Sometimes the money you put into it is tax deductible, too. But, that's in NL, I don't know anywhere else. Source: https://www.nibud.nl/onderwerpen/pensioen/pensioen-opbouwen/
6 figures is possible, there are/were some software companies (VC backed, US based, US startup style, FAANG) that pay that much, otherwise there's highly paid jobs like management, doctors/dentists, landlord, public motivational speaker, drug dealer, etc that can earn you that much. But it's not handed to you like it feels like it is in the US / SF, but I realize that's very much a unique bubble.
So yeah, basically none of your comment is true, it's just not talked about as much because our basic systems are alright for most people and few have the extra income to think about doing more with it.
Or, very smart for the establishment.
> the stuff we do in this country is so much extra work/effort/cost and all of it comes at the worker's cost.
The GP described tax optimizations for the highest earners. The idea that they would be better off in Europe is plainly ridiculous.
Save money for retirement early
I don’t think these methods are possible anymore in this modern economy of “fire everyone because of AI and then rehire them a few months later at half the salary”.
If you’re not one of the senior managers, I don’t think these kinds of long term investments are feasible anymore.
This assumes a lot of things that may not be true and would not map to whatever mental model you formed with this.
People are often quick to dispense technically correct (or mostly correctly) financial advice but rarely is financial mangement simply a technical problem to be solved in someone’s life
> 2. Get an HSA and max that out. Invest it all in a target date retirement fund. Do not use any of it, pay for medical expenses with cash and save your receipts. Get reimbursed for the receipts when you retire.
Very important detail, FSA is not HSA lol.
Are there any retired 45yos who were making around $100k and can attest to this advice being accurate?
It's incredible how out of touch this place is sometimes.
Good advice on saving HSA reimbursements until later. Also, after 65 there's no penalty for withdrawing from your HSA; its just taxed at regular income at that point.
Eh, I kind of disagree. Contributing until you hit the maximum employer match makes the most sense for quality of life.
Ah yes, the good old US of A where a 23 year old can start out making $100k/yr.
While here I am, 39yo, having been in this field for 17 years and worked my way up to a lead, and having worked at banks, fintechs, medtechs and consultancies, am 'only' making roughly €76k/yr.
And this is with pouring personal time into studying and applying latest tech in side projects to stay relevant.
Honestly if the financials of the US tech scene ever normalize to what the rest of the world has, you guys are in for a rude awakening.
It's an outlier, even in America. I live in the US and no 23 year olds at my company are making 100k/year, lol.
Most jrs in America are working jobs like this - https://www.indeed.com/viewjob?jk=0dcd3d05ab694ba8
And this will get you like $1M at 45? You can’t retire on that.
I definitely could. An american maybe couldn't.
$1.8M-$2.2M. Assumes 6%-7.5% annual return. Does not include employer contribution. Provides $72k-$88k /yr income. Assuming you pull social security at 67, your continued gains exceed your draw, and your fund perpetuates until you die.
If you retire at 45 won't that significantly impact social security?
It just means you draw ~$2500/month instead of ~$3800/month. That makes your $77k/yr income into $107/yr, but more importantly it helps your retirement account keep growing so it outlives you.
You can't live on $40,000 a year?
What about property taxes, the occasional $40k visit to the ER for a few stitches?
Does that happen often to you?
lol good luck following any of this advice and also paying for basic living expenses.
> Get reimbursed for the receipts when you retire.
Holy crap, you can do this? I always assumed for some reason you had to pay for expenses with an HSA in the year they were incurred.
That's for an FSA (which is similar to but distinct from an HSA).