[USER]

I’m meeting with my daughter this weekend to discuss the retirement choices for her post-college job that she started in July.

She also needs to build an EF as well.

I know enough to guide her along to create a budget but want her to see what other people say that aren’t her dad/mom,

Will move out on her own perhaps after 12 months or so or when EF is moving along nicely enough.

Here are the specifics.

Age: 24/Single/Degree – Advertising

Debt: No student loans due to scholarships & one $10k interest-free parent car loan starting this month @ $500/month.

Job: Sales Executive for established mass media/marketing company

Base Salary: $50k

Sales commissions: I don’t quite understand their mix…

but for the rest of this year I’m going to estimate an income of $25k with commissions of say $10k.

(Not sure of specific fund/investment choices until I sit down with her and see them this weekend.

I’m not a fan of target date funds as I hear they can be too conservative, especially at her age.

“The employer matches up to 4% of eligible compensation that she elects as Pre-tax or Roth contributions.

When she contributes to her plan the employer matches 25% of the first 4% of her pay.”

My suggestions for her in no particular order:
*pay car loan before moving out
*Fund her EF of $12k before moving out and then continue adding ~$300 a month.

*Contribute immediately to pre-tax 401k up to employer match and then the Roth up to total of 15% of income (based on 12 month scenario since she is starting 2024 contributions mid to late August).

What say you now and looking forward 5 years?

[Trevis]

She’s young. Many years from retirement. The Simple Path is likely the best.

Total stock market or S&P 500 fund for all of her retirement investments.

And put as much in as she possibly can.

Since she has a long runway, and assuming the commissions are what you think they’ll be her top marginal tax rate isn’t too high so she might as well go all Roth for now.

[Bill]

I would take a step back. I know you want her to make the “right” choices immediately, but it really is more important that she learn HOW to make good financial decisions.

So, I’d start by talking to her about what her short and long term goals might be.

And then you can walk her through how you would prioritize the money available to work towards those goals.

[Teresa]

At her income level, I’d do Roth 401k instead of traditional, since she’ll probably earn too much to take advantage of the saver’s credit.

Also, don’t miss out on a Roth IRA.

She can invest in that and keep the money in a money market fund, CDs, etc, while building up an emergency fund (using the IRA as an emergency fund).

Later, if she doesn’t need it, she can then invest the IRA money.

You only get an 15 1/2 month window to contribute the annual amount to an IRA, and then that window closes forever.

May as well get the tax advantage while you (she) can.

My “rental agreement” with my young adult son has been that he has to max his Roth IRA and contribute x% to his 401k (he gets a 6% match).

This gives him a good retirement base to start life off with, and he can use the Roth IRA contributions to buy a house, or pay for first/last rent if needed.

He also has to pay a portion of some bills to get used to that.

[Nicole]

In my budget I never plan for variable income like bonus commissions overtime etc.

I budget and make it work off base salary alone.

I keep a list of things I want to buy “big ticket items” or how much I want to save for a vacation etc.

and I use variable income to fill those buckets by priority before purchasing.

That way if there’s a lean year I’m not struggling to sustain monthly budget because I didn’t get xyz commission overtime etc.

can even plan to save half and spend the rest, but I always include IRA and 401k in base budget and can decide later if I want to save more based on my list of wants when I get my bonus commissions or overtime.

[Kate]

Now that she knows how much her net paycheck she expects each month, I would first recommend to work on creating a budget with her such that every dollar has an assigned place.

An example monthly budget based on netting $3400 may be:

$1,500 rent

$500 car loan

$100 car gas/maintenance

$100 car insurance

$300 groceries

$150 dining/entertainment

$550 Roth IRA contributions

$200 wants/travel/savings

I understand that she may live at home for the first year, meaning that $1,500 for rent could be redirected to an EF.

This also doesn’t account for 401k contributions, but perhaps she could budget such that she could essentially plan to put all of her commissions towards it.

Also, her income puts her in a relatively low tax bracket, so I would choose to do Roth 401k instead of pre tax

[Rachel]

I’d also discuss sinking funds.
It’s unbelievable how many people outside fire community don’t have separate (non emergency fund)

money to cover even insurance deductibles.

I’m assuming she’s staying on your medical insurance until 26, but to get her in the mindset, she can still have sinking funds for car and renters insurance for now.

Then a fund for vacations.

[Kristen]

At that income and starting out I would be all Roth personally. Once her income goes up and is in the mid to upper 20’s tax bracket then consider pretax.

She’s young and has many years to allow money to grow tax free.

Also consider opening a personal Roth IRA with fidelity outside of her job.

[Ashley]

When you say Roth, I assume you mean Roth 401k? Don’t forget she can contribute to an IRA as well.

[Karen]

If she is living with you and doesn’t have any bills other than her car loan, my advice would be to put as close to the absolute max she can in her 401(k) plan, and then slowly building a small emergency fund.

I can’t tell from your post if the plan has a limit of her percent of pay

(many plans don’t other than the 402(g) limit), but now is the time to sock that money away, before she starts paying rent/mortgage, having kids, etc.

[Charlotte]

With a $50k salary I would definitely do Roth, not traditional.

[Author]

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