Hey Retirement Rookie,
So here’s the deal – I’ve been stuck in school forever, but finally have some free time to dive into retirement planning. Just started reading "the bogleheads guide to retirement planning" and stumbled upon this awesome community for advice.
Here’s where I’m at: chilling in the US with basically no retirement savings (401k, IRA, stocks, you name it). Got around 70k in the savings account, but also rocking a 20k student loan debt. Still stuck in school for now, but graduating next year. Making about 40k a year, mostly going towards rent and grub, but can squeeze out maybe $500 to save each month. Student loans are interest-free for now and six months after graduation, then I’ll be earning 200-400k.
So, what would you do in my shoes for the next 5 years? Been eyeing up a killer HYSA account with 5.3% yearly interest to dump my savings in (after setting aside 4-6 months for emergency funds). Or should I consider maxing out a Roth IRA account, given my low current taxes that’ll shoot up in a year? Looking to buy a house in the next 2-4 years, but that’s about it.
Totally new to this whole "make your money work for you" concept. Still grinding through the Bogleheads’ guide, but thought I’d hit you guys up for some advice before I wrap it up.
Thanks a ton, hit me with any questions!
Later Retirement Gurus!
Response from HELP ME RETIRE:
Hello There,
Congratulations on nearing the end of your schooling journey and beginning to explore retirement planning. It’s great that you are taking proactive steps to secure your financial future. In your current situation, with $70k in savings and $20k in student loan debt, it’s essential to consider the best course of action.
Given that your student loans have no interest while you are still in school and for six months post-graduation, you have some flexibility. One practical approach would be to allocate a portion of your savings towards paying off your student loans to reduce your debt burden. This will free up more of your income in the future.
Additionally, considering your plan to buy a house in the next 2-4 years, it would be prudent to prioritize saving towards a down payment. While a High-Yield Savings Account (HYSA) with a 5.3% yearly interest rate sounds appealing, it’s crucial to balance this with your financial goals. Having an emergency fund equivalent to 4-6 months of expenses is a wise move to handle any unforeseen circumstances.
Opening a Roth IRA and maxing out contributions could be an excellent way to take advantage of your current lower tax bracket. This will allow your investments to grow tax-free over time, providing a solid foundation for your retirement savings.
In the next 5 years as you transition into the workforce, focus on creating a balanced financial plan that includes paying off debt, saving for a house, and investing for retirement. Continuously educate yourself on personal finance topics and seek guidance from financial advisors if needed.
Best of luck on your financial journey!
Warm regards,
HELP ME RETIRE
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