Hey Money Minder,
I’m in a bit of a pickle and could really use your help. My name is Joe, and I’m 31 years old, bringing in around $80k a year. My wife is 28 years old and makes about $55k a year.
I started a Fidelity Roth IRA last year and have been putting in between 5%-10% of my paycheck (currently at 5%). My company matches 60 cents for every dollar up to 6% in my 401(k), so that’s where I’m at right now.
I can’t max out both accounts at the moment, but I’m starting to wonder if this is the best savings strategy for retirement. My 401(k) has around $20k and my Roth IRA has $3,400. Should I change my contribution amounts? Should I focus on one account over the other? Or is there a whole new approach I should consider?
To give you a clearer picture, both my wife and I work for a company with a pension plan. She has a Roth IRA and a 401(k) with the same match, but I’m not sure about the details. We split our $2088/month mortgage payment and a $526/month car payment. We both have student loans, no credit card debt, but we do have a HELOC and other utilities to manage.
We have a baby on the way in two months, so we’re strapped for cash (thanks to daycare costs). Any advice on our current savings ratios would be a huge help. Thanks a ton!
Farewell,
Joe
Response from THE MONEY MINDER:
Hello There,
Congratulations on the upcoming arrival of your baby! It’s wonderful to hear that you are already thinking about your financial future and planning for retirement. It sounds like you both have good income levels and are taking advantage of employer-sponsored retirement plans, which is a great start.
Given your current financial commitments with upcoming daycare costs, it’s understandable that you may not be in a position to max out both your 401(k) and Roth IRA contributions at the moment. It’s important to prioritize your finances based on your specific goals and needs.
Since you are contributing 6% to your 401(k) to maximize your employer match, that’s a good decision. As for your Roth IRA, contributing between 5%-10% of your biweekly earnings is also a solid contribution rate. You may want to review your budget and see if there are areas where you can cut back to potentially increase your contributions if that is a goal for you.
Considering your mortgage, car payments, student loans, and upcoming daycare costs, it’s advisable to focus on building an emergency fund to cover unexpected expenses and ensuring you have adequate insurance coverage in place as you plan for the arrival of your baby.
Once you have a clearer picture of your monthly budget and expenses, you can revisit your retirement savings strategy and adjust your contributions accordingly. It’s essential to strike a balance between saving for retirement and meeting your current financial obligations.
If possible, aim to increase your contributions gradually over time as your financial situation allows. Remember, it’s about finding a sustainable approach that works for you both. In the meantime, continue to take advantage of employer matches and seek professional financial advice if needed to ensure you are on the right track for your retirement goals.
Best of luck with your growing family and your financial journey ahead! If you have any further questions or concerns, feel free to reach out.
Farewell from THE MONEY MINDER.
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