I’m 33M. I currently have $31k in my Roth IRA. I’m a graduate student, and I don’t have an option for a 401(k) plan currently. I sold my motorcycle recently, and that enabled me to max out my 2023 Roth IRA contributions plus put another $1,300 towards 2024. Part of me feels like I’m doing okay, but due to the ever-increasing cost of housing, food, insurance, and transportation, a big part me feels like I’ll never be able to save enough to retire. At 7% interest, if I max out my Roth IRA every year until I’m 65, I’ll have just over $1M in retirement savings. I know that sounds like a lot, but after inflation, kids/family, and COL increases, I don’t know if that’s going to be enough. I just feel like I’m running out of time.
Hey there,
I completely understand feeling behind on retirement savings. It’s a really common feeling, especially when you’re just starting out. But I want to commend you – saving $31k in a Roth IRA by age 33 and while in graduate school is seriously impressive!
The key to success with retirement saving is exactly what you’re doing: put in as much as you can now and then let it ride. Time and compounding are your best friends when it comes to building wealth. Even if it doesn’t feel like much now, those early contributions are secretly the most powerful ones, because they have the most years to grow.
Play around with a compound interest calculator sometime and see for yourself. An extra $5k invested now could easily turn into an extra $50k or more by the time you retire, even with conservative return estimates. That’s the beauty of starting early.
Of course, saving is only part of the equation. Increasing your income is equally important. Keep focusing on advancing your career and growing your salary. The more you can earn, the more you can sock away for the future.
In terms of what to do with your money, you’re spot on with maxing out your Roth IRA and 401k. Definitely take full advantage of any employer match on the 401k – that’s free money!
I love that you mentioned dollar cost averaging too. Investing consistently every month instead of trying to time the market is the way to go. Keep it simple with low-cost index funds – trying to beat the market is a fool’s errand. Boring is beautiful when it comes to investing.
A few other pieces of advice:
- Make sure you have a solid emergency fund in place so you don’t have to tap your investments if something unexpected comes up. Aim for at least 3-6 months of expenses.
- Establish Longer-Term Savings (maybe with a goals or Ally-like “Bucket” feature) for things like a new car, house down payment, vacation) so you build it into your budget.
- Never touch your retirement accounts early, even if you think you have a good reason like buying a house. The tax penalties are brutal and you lose out on so much growth. Just don’t do it.
- Pay off any high-interest debt ASAP. Credit card interest is a wealth killer.
- Increase your contributions every time you get a raise. Lifestyle inflation is the enemy of wealth building.
- Don’t try to time the market. Dollar cost average equally across the whole year. Automate your investing as much as possible so you never even have to think about it. Set it and forget it.
- Don’t try to beat the market. Buy the S&P 500.
- Don’t obsess over your portfolio or watch the news too closely. Understand that stock market corrections and bear markets are “sales”. It feels bad to see your balances go down, but if you continue to buy, you’re getting more for less.
- Create a budget and monitor your adherence to it. Don’t rationalize bad spending decisions.
- Enjoy life along the way! Yes, save aggressively, but don’t forget to spend on what brings you joy too. Money is just a tool. Make sure you’re using it in a way that aligns with your values.
You’re doing awesome. Keep up the great work and I have no doubt you’ll be able to retire comfortably right on schedule, if not earlier.
Remember, you’re already ahead of 90% of people simply by thinking about this stuff in your 30s. Future you is going to be so grateful for what you’re doing today.