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## Deciding on Retirement Contributions: A Financial Dilemma

I am currently a 21-year-old individual who has recently secured a new job opportunity that includes a 15% match from the company. The salary being offered to me is $62,000, with the potential for a bonus of up to 19%. If I were to contribute 15% of my income, the employer match would amount to $9,300.

Given my financial situation, I have decided to reside with my parents for a few years to alleviate the burden of student debt, which currently stands at $26,000 with an interest rate of 6%, as well as a car loan of $8,000 at 7%. As I aim to make sound financial decisions, I have heard suggestions advocating for the maximization of contributions to my 401k early on.

The looming question that remains is whether contributing up to 15% of my salary in addition to the Roth maximum of $7,000 would suffice, totaling approximately $25,600. Should I consider allocating even more towards my retirement fund, or would it be wiser to focus on paying off the remaining debt within the next two years?

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46 Comments

  • 2019_rtl

    Yes, I’d max that 401k while your living expenses are still low

  • No_Doughnut_1991

    My job doesn’t offer a match at all. I still put enough to max out. My first 3 years I was doing 20% with no match making just about what you are making living at home. Do it. It’s free money.

  • lilwaterone

    Match and Roth is an AMAZING start. And keeping in mind to oay off debt faster is a great practice. I would do that! You’re doing great, keep it up! You will pay that debt off quick and then be able to save for your future.

  • Stren509

    I only wish I did more when I was younger, im fine now but I could have been so much finer. Do as much as you can afford. Just realize every year your money gets less valuable and in 20 years each dollar today will be many dollars.

  • SteakNotCake

    I would def. take advantage of living with my parents and max out the 401k ($23k) for a few years. $62k salary would go down to $39k without your bonus. Adding $7k to a Roth would get you to $32. Pay off the car loan this year and then focus on the school loan after. Life gets in the way when you get older. You’ll want to save for a house, wedding, or a child, etc. and can adjust the amount later to what your needs will be.

    https://imgur.com/a/6v3A96u

    Maybe seeing this will help. That’s a 401k calculatation for contributing $23k for 3 years (just your contribution, not including your company match for the 401k balance), then go to just 15% at 24. This is what it will be at 65 w/ roughly 6% yearly growth. Not too shabby.

  • Madmandocv1

    You will do much better if you max out the 401k, invest it 100% in stock market index funds and leave it alone no matter what happens. That last part is crucial. The compounding becomes insane when you start in your early 20s. It is good to pay down the loans early if you can, but they have the feature of requiring payments so you are always in the process of paying them off.

  • WritesWayTooMuch

    You nailed it kid.

    1) get full match but don’t max the 401k. If you can, set it up as a Roth 401k until your in the a higher tax bracket

    2.) pay off your car. Yes…before you max your Roth IRA. Never borrow for a car ever again.

    3.) max HSA through “payroll deductions” if employer has an hsa. It’s 100% the most tax adventurous account around. Reduces taxes this year…money comes out tax free for healthcare, and this is the only I account I know where you can save on payroll tax IF and only IF you find it with payroll deduction. In essence…this is an extra emergency fund for you. If you get really sick…your covered .. if you lose a job and need healthcare….covered. also…medical is the top expense for most retirees.

    4.) get 2 months expenses for an emergency fund. Tie it up in something with a return but you can pull out. Also…pretend you are splitting an apartment and figure out what rent food healthcare and utilities would cost…and use that as your 1 month estimate.

    I personally invest my emergency fund because I seldom tap it. I am to keep 6 months expenses (I have a house and family) and IF IT ever drops below that 6 months mark, I pause all other savings and top it off. That happened to me in 2020..I topped it off for 5 or 6 months each month. Then the markets came back…and kept coming back and now we have a down payment for our next home or markets could drop 40% and we would still have 6 months of padding. If your money climbs above 6 months leave it alone (unless you have a great reason to tap it)….or your asking for trouble if markets tank and then you get laid off or something happens.

    5.) max your Roth IRA

    6.) Pay off student loans. Get a second job or side hustle for a year or two…squash that debt asap and you’ll feel great. And will be amazed how quickly wealth will grow after.

    Once car and student debt is paid off…..

    6.) whatever your car payment was….save that for your next car every month. Invest it like an emergency fund or do something more liquid like hysa or cds. Your call….no idea how used up your current car is. Pay for your next car in cash.

    7.) start saving for a home or apartment. Get room mates to split that payment up. Privacy is a luxury. Get wealthier before splurging on luxuries. Bonus points if you are willing to try out a multi unit. Great side hustle for young people with time energy and know a bunch of renters personally.

    8.) Save a little each month for something big, special and memorable. A 3 month backpacking trip while you’re single, a wedding, a masters degree or certification to project your career…..I don’t know you personally but I’m sure there may be something that means a lot.

    9.) max 401k.

    10.) either contribute to mega backdoor Roth IRA or ay down mortgage.

    11.) if mega backdoor Roth is maxed for the year or mortgage is paid off …do the other one.

    12.) brokerage til you have 2-5 years expenses. You can use this for early retirement or a long sabbatical when you have kids one day.

    13.) invest in getting time back…grocery delivery, virtual assistant, landscaper….whatever.

  • DFLOYD70

    Yes! Do it! You won’t miss it. You will appreciate it once you get older and have that sweet, sweet, compounding interest. I wish that my employer matched anything. They matched nothing and I have 260k at 53. I wish I had started younger.

  • mexicandiaper

    15% match wtf!!! yes you max it max it until you live in a box next to your job. Also are they hiring?

  • b_ack51

    If I could travel back in time 20 years ago, I would bump up my 401k percent. I did enough for company match which is good, but if I could have paid more I’d be happier today.

    So yes put the most you can afford.

  • EnthalpicallyFavored

    Yes. No question. You’d be throwing away money if you don’t

  • Grendel_82

    Contribute until you take full advantage of the 15% match. Then focus on 7% car debt. Get on whatever income adjusted student loan debt payment plan you qualify for and pay that amount.

  • Fabulous_Shoulder_37

    Company match is 100% return on your investment – and 15% is quite generous indeed!

  • Hungry-Low-7387

    Always match free money at a min. Max the 401k as long as possible!

  • Grevious47

    To be clear maxing a 401k refers to going up to the contribution limit which is $23,000. Contributing to get the full employer match is not “maxing” Just FYI because you will confuse people if you say you are “maxing your 401k” when you are not.

    If your parents are letting you live with them specifically to clear your loans you should be doing that. Paying down your loans AND contributingn $23k to 401k AND contributing $7k to Roth IRA would be amazing financially but is probably a stretch at 62k a year.

    Also to be able to move out you will need to save money outsids retirement as well. Id get your full match, pay down loans, contribute to your Roth and start building up an emergency fund that can fund your move out

  • jfk_47

    I feel like a man dying of thirst watching another man drown.

  • CalmTrifle

    Do you have an emergency fund? I would build that up into a HYSA (AMEX is at 4.30%). 401k maxed is great, but also you want a level of liquidity and access to emergency funds.

  • Emily4571962

    If you can afford it without having to live like a total hermit, go for it. If I had, I’d have been set to retire at least 10 years earlier. If only I had a Time Machine…

  • larevolutionaire

    Yes, match up to the full, it’s a great financial tool. And work evening and weekend to pay off the students debts and the car. In a few years, you will have no debt, a good beginning of a pension and probably a higher income. And you will know how to buckle down and tackle up problems.

  • rumblepony247

    What a generous match! Curious, what’s the vesting schedule?

  • axonaxon

    At 21 $1 in your 401k is worth about $88 in retirement. That’s the power of compounding interest. By the time you’re 30 it’s more like $35.

    There’s obviously a lot of assumptions about market performance in there, but I got those numbers from “The Money Guy” channel on YouTube (two certified financial Advisors who have a great podcast).

    Invest everything you can, whenever you can!

    Your future self will be so incredibly grateful

  • 4b3z1ll4

    In my company only EVPs get 15% match. Take advantage of that.

  • StayGoldenP

    just out of curiosity, what industry/line of business are you in? have never heard of a 15% match, that’s awesome. definitely take advantage of that

  • Primary-Mud6452

    Do to gain max match. What ever gets you the 15% match.

  • Primary-Mud6452

    Which company? That is a super generous match. Typically one sees 8%.

  • 8dtfk

    Suggestion: Max out as much as you can when you’re younger. As you get older, your expenses may increase and you may not be able to contribute as much as you’d like. It’s best to build a part of that base today and peel back a bit as you get older.

  • drnegro23

    Max out the roth, and just the match on your 401k. Pay off your debt and once done, find ways to invest the rest. It is not a clever idea to max out your 401k. All you doing is, postponing your check for a later day to be taxed at a higher rate. We all know taxes are going to be higher in the future. Most ppl do a great job saving and a poor job on tax planning. Just my opinion

  • techsinger

    Sounds like you’re in a very good place right now. Be sure to thank your parents daily for helping you pay off that student debt before it becomes a lifetime burden. The best gift you can give them is to be independent and happy. Good luck!

  • ssmurffyy

    Maxed to the 15% and Roth max is a fantastic start. Also consider increasing 1% a year while you can. I’m 30 now and contribute about 16%, but started with 7%/maxed. Now that I’m looking into a home and kids I might need to back it off, but it got me a huge step ahead my first years out of college.

  • 1000thusername

    Do the best you can all the way up to the match. Of course you need to eat too, but if you even ground this out at the max for a couple years before dialing it back to save for a house or for whatever, those dollars now will pay off supremely when you’re older. Wish I had the smarts when I was your age to do that.

  • west-town-brad

    MAX. IT. OUT. Your 41 year old self (me right now) will thank you. I did the same at 21 and I’m so far ahead of my peers it’s crazy.

  • MathematicianBroad56

    Yes no question. That’s a steal.

  • Professional_Bank50

    That match is unheard of. Max it out

  • continue_improve

    There’s no such thing as sufficient at your stage of investing. Every extra dollar you put in to 401k now will not only save you tax but also have so much more time to grow compared to money you put in 10 20 years from now. Put in whatever you can afford until it is fully maxed

  • Whachis31

    Yes max it if your living at home my company also matches very high, I fortunately am able to max mine year round.

  • ZeroSumGame007

    Max the 15% match definitely. Thats an IMMEDIATE 100% return.

    Then pay off car STAT. Then student loans unless Biden gonna forgive em.

  • genesimmonstongue415

    Yes. Always Max It.

    I have zero match & I max it.

  • EyesLikeAnEagle

    Honestly, just putting in 15% into the 401k to get 30% total, along with maxing your Roth would be enough at your age to have a good retirement.

  • Apprehensive_Note645

    If you don’t go at least to get the full match you’re leaving money on the table. Never a wise thing to do. It is an aggressive percentage at 15 but if you can afford it you won’t regret it! That money is also much more useful to you in the 401k and reducing your tax bill to boot! Although you’d have to do the math on what makes sense for your specific situation (just sharing what I know, not a pro)

  • SupermarketOk2795

    Yes, yes, yes, yes, yes & yes! Compound interest needs time! Do it now! Max as fast as you can to the IRS max, you’ll retire a very, very wealthy.

  • SupermarketOk2795

    Get into the ROTH early. Once you hit income max on ROTH, you’re done, contributing.

  • gguedghyfchjh6533

    Max out everything you possibly can. Time is on your side and you will thank yourself later.

  • Roll-tide-Mercury

    As long as you get this match, you make it happen.

    Yes, if income limits allow, a good strategy is put 6k into a Roth.

    Does your company allow 401 Roth contributions?
    If so, that may be better. Some will say no but the truth is it is personal. Roth, you pay tax now and and growth and distributions are tax free. Paying tax now and getting the growth makes a lot of sense.
    All that said, it would be ok to try to max out your 401k.

    Again many would advise, 401k up to the match, the Roth, then back to 401k up to the max 401Roth and or pretax.

    Lastly if you have an HSA, max that, and then pay medical out of pocket. This is tax free contributions and growth, then for qualified medical costs, tax free distributions. You can save all qualified medical expense receipts and get the money tax free in the future, like 40 or 50 years or even next year. Personally I’m saving mine for my retirement medical costs. If you do need the money in retirement for non medical then it is taxed like a 401k distribution/income.

    Very important, this is only for HSA, FSA accounts do not roll over forever….

    Edit, if your HSA plan allows investment.

  • zenos_dog

    Time is on your side. Get started as early as possible with the most money. Charlie Munger and others point out the first $100,000 is the hardest.

  • Elder_Priceless

    Yes. Do it your whole life and retire rich AF.

  • Deep-Ebb-4139

    Absolutely, max it out now. Just for some insight though, being that you’re only 21 there’s a very (very) high likelihood that the 401k won’t be around that long anyway. Those saying different are either naive or not very well informed.