Decoding the Legalese: How AI Can Help 27-Year-Olds Determine if They Can Back Off After Saving a Good Chunk of Money
- December 10, 2023
- Posted by: legaleseblogger
- Category: Related News
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Assets and Income Summary:
As I assess my financial situation, I have a considerable amount of retirement funds totaling roughly $140k. This includes $110k in a Traditional TSP 401k, $27k in a Roth IRA, and $25k of equity in my condo. In addition, I have a $2k balance in my checking account and $22k in a High Yield Savings Account.
In terms of income, I earned $112k in 2023, but anticipate a decrease to $100k due to a change in my work schedule. After all deductions, I typically have around $3600 available each month.
Financial Dilemma:
Given the relatively tight budget I have due to maximizing my 401k/IRA contributions, I am considering reducing my 401k contribution from $865/month to $500/month. This adjustment would grant me more financial flexibility and allow me to allocate additional funds towards a taxable brokerage account while continuing to maximize my IRA contributions.
AI Legalese Decoder Solution:
The AI Legalese Decoder can be immensely beneficial in this situation. By utilizing the decoder, I can receive accurate and comprehensive guidance on the potential impact of adjusting my 401k contribution. It can help me understand the tax implications, potential penalties, and overall impact on my retirement savings. Additionally, the decoder can provide personalized recommendations tailored to my specific financial goals, ultimately helping me make an informed decision regarding my investment strategy.
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If cash is tight, it could make sense to back off retirement savings a little. You’re well on track.
But unless you have a specific goal in mind I don’t see a reason to back off retirement savings just to invest in a taxable account.
Maxing out your 401k as well as Roth is always recommended, but you do want to diversify into non qualified investment vehicles that are not tied to the market since downmarkets matter!
WhatÔÇÖs the reason for putting so much into your 401k every month?
Figure out how much of an emergency fund you need. $22K in a HYSA may be sufficient, but walk through the kinds of sudden expenses you may have – condo repair, car repair or replacement, sudden health issue (especially if you have a high deductable plan). They probably won’t all happen at once, but they could.
Also look at any intermediate term needs you may have that you won’t want to use retirement funds for. For example – a down payment on a bigger place.
Once you have these numbers you can determine a minimum amount to keep outside of the retirement account. You can always save more depending on your preferences.
I could figure this out for you, but it’s better to give you the link to my favorite compounding interest calculator: [https://www.hughcalc.org/compound_js.html](https://www.hughcalc.org/compound_js.html)
I suggest bookmarking that and using it to calculate projections for different scenarios. You’ll pretty easily see what strategy will get you to a comfy retirement.
Also, create a budget for yourself that includes money set aside for “fun”. You don’t need to spend a fortune to have fun, but it’s important to have memorable experiences doing things you enjoy, ideally with people you enjoy being with.
What are your debts? Any CC? Car loans? Student loans? Mortgage?
Pay those off first.
Funny, I just posted this on another thread.
https://www.uidaho.edu/-/media/UIdaho-Responsive/Files/financial-aid/Forms/BEAMS/infographics/pdfs/a-tale-of-two-savers.pdf
My friend, youÔÇÖre killing it by investing so early and often. Your 50 year old self is going to be very, very thankful to you.
Yes, ease up for a bit without any guilt. When your income goes back up w/o working nights, increase your retirement accounts again.
Just 2 pieces of advice; 1) donÔÇÖt succumb to lifestyle creep, and 2) continue maxing out the Roth.
Yes. The late Charlie Munger of Berkshire Hathaway always said that the first $100K is the hardest to save, but the younger you are to accomplish it, the better. You can take a break from your pace but still continue to invest consistently. Just set it and forget it, especially during market corrections until you retire.
Before investing in a taxable account, see if you’re eligible to invest in a health savings account (HSA).
It’s not how much money you make but how much money you keep.