Unlocking Your Retirement Strategy: How AI Legalese Decoder Can Help Optimize Your Savings
- December 9, 2023
- Posted by: legaleseblogger
- Category: Related News
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Title: Personal Finances and Retirement Planning for a Second-Year Teacher
Current Financial Situation
I am a 25-year-old second-year teacher earning approximately 54k annually. Despite having student loans, I have the privilege of benefiting from federal loan forgiveness programs, which alleviates my concerns about repayment. After tax deductions, my take-home income averages around 40k per year. Additionally, I am diligently setting aside 10k annually towards purchasing a house. Since I am solely responsible for my own financial needs, my expenses are manageable, enabling me to prioritize saving for future goals.
Retirement Contributions
I am currently maximizing my Roth IRA contributions, allocating the full amount of 6500 annually. Recently, I discovered that my employer offers an optional 401k plan, albeit without matching contributions. I am contemplating whether it is advisable to contribute around 4k to the 401k in order to attain a 20% savings rate. I am open to receiving guidance on whether this contribution amount is suitable or if adjustments are advisable.
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If your budget can afford it this would not be a bad idea. At 54K gross you are already saving over 10% for retirement but if you can do it saving more will get you more long term tax-free growth.
You are doing great saving that much at your age. Congrats!
The HSA is the best advice for sure. Those contributions and withdrawals are tax free. I would make any additional contributions to the HSA and even reduce the 401k to the company match level and contribute the rest to the HSA. HSA is medical, believe me you can spend that money in your lifetime. Medical stuff isnÔÇÖt cheap!
Is there a Roth 401k option? This is after tax, but at your age and tax bracket, this would be a big tax free number when you retire. Something to think about
As for your question, 10% is great. Obviously 20% is better, but I would suggest enjoying life a little as well. You are only in your twenties once. DonÔÇÖt be stuck alone on weekends because you are saving an extra couple percent. You sound intelligent and diligent just asking this question, youÔÇÖll be fine later in life.
Do you have an HSA?
DonÔÇÖt you also get a pension as a teacher that you pay into?
Do you have a pension as a teacher?
First of all, youÔÇÖre doing great. Congrats!
My take might be a little unconventional. Because you will have a pension in retirement you might be better off putting the extra investment in a brokerage account rather than a 401lk if your employer doesnÔÇÖt match. That way you donÔÇÖt have to worry about RMDs or being in a higher tax bracket later because of the pension. A brokerage account will be taxed as a long term capital gains rather than income. You can also try a bit of tax diversification and split the remaining 4k half in a 401k and half in a brokerage account