I know everyone always advises to save as much as you can and as early as you can for retirement and this has resonated with me for some time... Especially after seeing my mother and knowing that she has zip in savings and is turning 56 this year...
I have already created an overview, very basic, of what my finances will be like, all rounded down etc for next year.... if everything goes to plan, i will pay off my invisiline loan in full and max out my Roth IRA .
Here's were my question comes in... AT BEST, i'll pull 40 grand Gross... and that's a huge stretch... Next year roth contributions bumps up to 5,000.... which is more then 10% of my GROSS income even when its stretched.
I want to buy a house eventually... I've rented, and frankly with the market the way it is, i'd love to be getting equity instead of flushing stuff down the toilet to another's wallet. Since house prices are finally going down the next couple of years will be prime for me to get on the property banwagon... houses have never been so low! What was 300,000 last year is 250,000... and there are a few single bedroom places for less then that!!! i'd love to get into something in a year or so... but i'll need at least 60,000 for a 20% down... [if the market stays were it is] and that will take years to do.
So.... Here's my question... Should i adjust my plan to save more for a downpayment [but still 10% GROSS] ... or just max out the roth because eventually 5,000 won't cover 10% of my income?
JUST FYI--- i'm a local government employee... which means CALPERS for me... not Social security. I currently pay 1% into it, and council puts in the other 6%.... here's the formula
- I get 2% of my highest annual pay X [how many year's i've worked] ... for the same number of years i've worked.
- So, since i'm 21... if i stay with the city till i'm 55... that's 34 years... [at 2%, i get 68% of my largest annual pay]
So lets plug in some pretend numbers:
- .68 x 35,000= 23,800 a year for 34 years [runs out when i'm 89] $809,200 before taxes
- .68 x 40,000= 27,200 a year for 34 years [runs out when i'm 89] $924800 before taxes
- .68 x 50,000= 34,000 a year for 34 years [runs out when i'm 89] $1,156,000 before taxes
- .68 x 60,000= 40,800 a year for 34 years [runs out when i'm 89] $1,387,200 before taxes
Intersting article by Liz Pulliam Weston...she touches on retirement.
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Interesting article by Liz Pulliam Weston on MSN Money...she talks about retirement.
ReplyDeletehttp://articles.moneycentral.msn.com/SavingandDebt/Advice/16FavoriteMoneyRulesOfThumb.aspx
As young as you are, I don't see too much downfall to saving for the downpayment at this time. Come age 24, 25, 26 you'll really want to get serious about the Roth. I would take all I could and put it in a high interest bearing account. If you plan on buying within the next year, though, I would just focus on the Roth because you won't net much interest in just a year. Good luck. Nichole
ReplyDeleteI was reading The Complete Idiots Guide to Investing and there is a chapter about Roth IRA's and how apparently you can use Roth contributions towards a first time home purchase without penalty. Granted, I'm not the most reliable source so I would take this with a grain of salt but with that being said I would definitely suggest looking into it. If it's true it would enable you to make retirement contributions as well as save for a home but you could determine at the time of purchase exactly how much you wanted to dedicate for your down payment.
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