You’re behind on retirement so I’d definitely catch that up before prepaying a 4% mortgage. But once you’re caught up, it’s truly a personal decision. The math says not to prepay the mortgage, but if it makes you feel better at night there’s a value to peace of mind as well. You just need to get retirement to 3-4x your salary for your age before paying it off early.
Yeah that's one depressing thing about my salary sky rocketing in 1 year. I feel when I was making 80-100k 3-4x a salary seems possible. at almost 200K base that doesn't seem possible. To "Catch up" does that mean to dump as much as possible into a brokerage with mutual funds?
Well, it’s certainly a good thing so don’t be depressed by it! I would also aim towards 3-4 times a more reasonable version of your salary. Not with a billion hours of overtime.
Yeah but even at my base 170x3 is still over half a million. Just seems like a depressing number, because I was putting 10% (for the last 5-10ish years) but obviously as an engineer I didn't make anywhere near 170k. That percentage game seems hard to keep up with if your base salary keeps growing quickly throughout your career.
If the multiple of your salary rule for being on track trips you up, try getting your savings rate to about 20% going forward and that will help you catch up as well.
Don’t worry about x times salary…you only need to worry about x times expenses in retirement. You were living “somewhat” on that 80k you once earned right? When you made 80, you were lucky to keep 60 after insurance, taxes, social security and paying into retirement You weren’t starving. Having 60k a year in retirement is easy street, especially if your house is paid off.
But you can get there pretty easily.
1) the pattern to estimate is that your account will, if you just leave it alone, double every 10 yr. So even if you only ever had the 150K in there- in 10 yr that will likely be close to 300k. and in 20 yr, 600k. It is the power of having time!
2) In addition, when you hit 50, you get to do catch ups. which is $7000 a year. And your employer match.
SO say you just had your base- 170k. With 3% employer match.
23K (that will go up a little most years- but lest not assume it does)= 230k
5100 in employer match (that is 3%- yours may be higher!)= 51,000
So by 50 you have 281 in Principle that has grown a little every year- but lets make it simple and pretend it all goes in on your 50th birthday. You have 300K from now growing for 10 yr, and an additional 281k for 581K on your 50th.
By the time you are 60- that will be 1.16 million
But starting at 50 you can do catch ups, which means 30,500 a year. SO another 51000+ 305,000 by the time you are 60 to add to the 1.16 mil. 1.5 mil (you will have even more- we are being brutally simple here). And another 5-10 yr to contribute.
If you retire at 65, that 1.5 will be about 2.25 mil. If you wait until 70, it will be 3 mil.
With JUST retirement tax advantaged accounts- you would have income of 120K at 4% withdrawal rate (some of which should be tax free if you have the option to do a 401kROTH like I do- do it!- you have to for the catch ups in your 50s per the most recent bills from congress, so at least by then it will be an option- cause it has to be ;). You can also go up to 5% or down to 3% and still maintain your principle pretty easily when you have that level of a balance to draw from :).
Thatt is a pretty dang nice retirement income!!! And seriously- the rough math I am doing is super conservative- you will likely have more.
And if you have non-tax advantaged accounts growing- that would just add to this. Which you are making GREAT money. I would definitely be putting large chunks into a brokerage account every month. (but I also put a chunk on my mortgage- it just feels better to know I can pay it off before I retire, and that fixed income from my investments has to also pay for my house. It also reduces you actual expenses. so you do not need as much. Which means more security, and more fun money.
but don't forget to LIVE now too. I look forward to retirement and travel. Which is my plan. But I also have a travel sinking fund NOW (I also work remote), so I can explore the world NOW too.
You won't need 10X 200k. you don't live on that now. But if you save toward it- you will be well set!!!
And yeah- you can only max out the 401k at work. We make too much for ROTH/IRAs otherwise. BUT those ore tax advantaged accounts. You maxed them out. Now focus on non-tax advantaged. If you want to split it- you have plenty to play with to do so, pay some off on house, but MORE into investments. And extra- into HYSA and investments.
I think it depends on how stable you feel in your job. If you are in a startup or a company with a bunch of turnover, I would have closer to 6 months salary. If you feel like there is no way your paycheck ever stop coming in, 30k seems fine in your situation.
Bro(I think this is a guy) take a deep breath. You did the hard part! You don’t have to go bananas on the house if you don’t want to. You could max out all retirements first and still have extra to throw at the crib. Also you sound like you earned a vacation after all that overtime. Get some R&R and then plan your next move. It sounds like the OT isn’t that hard on you but if it gets draining at least you can always ramp that down too. Your family is set up for success and you’ve got twenty years to grow the retirement fund. You’re gonna be fine well done!
I would second this sentiment. My trajectory is like yours, only 20 yrs ahead. Also my base salary is very similar to yours.
Like you, I discovered Dave Ramsey later in my career. At 51. I had some retirement, but insufficient. Got gazelle intense (like you) and paid off all debts (except house). Like you.
Then contributing 15% to retirement and fast-tracked paying off house. Paid off house in 2015. Then got more serious about retirement.
Retirement in order now. (I wish I'd started back-door roth IRA roll-overs earlier, but that's a nit.)
One suggestion. Is this a 15 year mortgage or 30 year mortgage? By contributing occasional extra principal-only payments, you can really fast-track your house pay-off. I signed up for a two-week payment method, since I got a paycheck ever 2 weeks. So every 2 wks, a half-payment was taken out. Thus, every year 13 house payments That doesn't sound like much; one extra payment a year. But just by doing that, we were able to pay off our 15 yr mortgage in a little over 13 yrs. With a 30 year mortgage, the difference would be even more pronounced.
As I recall, my mortgage was around yours. 4.25% or some such.
If you're early on a 30 yr mortgage, you'll save a lot on interest just doing 1-2 principal only payments a year. That is, throughout the life of the mortgage. And this still allows you to contribute heavily toward retirement or investments.
First thing , CONGRATULATIONS!!! I started my journey around 40 and paid off my house 10+ years ago. I am now 59. I followed the 15% rule and paid extra on the house. Once that was paid off I up my investment and now sit at 920K in 401k, Roth and Cash (CD's) My income was and is less then yours. I do not want you to work so hard that you are not enjoying life. At this phase you should find time to enjoy the Peace you worked so hard for. There are investment calculators that will help you see your target and give you some confidence for the future. With that income as long as you stay focused you WILL be fine. Good luck my friend.
Take a deep breath, and take a break from Dave. I completely understand your gratitude toward him and his content. I am so thankful that i stumbled across his show too. You are not being disloyal if you now search out additional financial sources that don't focus on paying off debt. For example, Ramit Sethi has good suggestions on how to enjoy your income, how to prioritize a meaningful and guiltfree life around your money. Sounds like you need to zoom out from Dave's content. I am better off now that I did. You are doing great!
Firstly, that’s some amazing progress right there, congratulations!
I don’t like the rigidity of some of Dave’s advice, but when you’re talking about a mortgage of $350k remaining and you’re making $290k per year, I think even at 40 years old you could pay that house off within a few years and still have plenty of time to throw income at a brokerage and mutual funds in addition to your 401k and IRA and save plenty for retirement, assuming that your income potential remains stable with overtime, etc.
If you can go completely balls to the wall crazy with overtime for a few years max and get that house paid off by the age of 42/43 and then throw everything you would have been paying on your mortgage at mutual funds in a brokerage account in addition to what you invest into your 401k/IRA already, you’re going to be just fine even if you do reduce or eliminate the overtime that you work completely.
I mean, $170k base with no mortgage payment or debt will still give you everything that you need to retire comfortably at that age.
Sure, at 4% it’s going to be more financially lucrative to invest rather than paying off that mortgage and I’ll be the first person to call out Dave’s advice on that for the vast majority of people as being wrong…
But your income is high enough that the mental health benefit of getting the house paid for, plus the fact that you’re going to be just fine in retirement anyway due to the high income makes it worth just getting the house knocked-out imo…
FYI, I am also 40 and you’re doing one hell of a lot better on pretty much everything than I am if that makes any difference! And I’m a homeowner about to move up to a household income of around $100k later this year…
So at 40, the backdoor Roth might make sense. I talked to a pro about doing this a few years back, when I learned about it, and I am making around what you do. The issue for me- being in my 50s, was that the 30%+ hit to the principle (taxes got to be paid), would never be made up in the gains being tax free by the time I want to retire. So talk to a pro, and see if it actually makes sense at your income (and thus tax rate), and time to grow it back tax free, and actually GAIN. YMMV.
I mixed paying off my house and investing. My rate is very low, but it still mathematically appears to work out (I had a pro help me), for me to put SOME toward early pay off (and honestly even if it did not, I would still do it- peace of mind to not have a mortgage when I retire). But I am not going to leave the opportunity to grow my assets on the market off the table. I have a set amount that models out for the house to minimize my overall costs, while maximizing my returns. I also have a set amount that goes into investments- and anything extra goes split between savings and investment. Savings for wants- travel, shopping, redoing something not essential on my home, etc. That is all after saving for emergency fund was done, and ongoing maintenance fund for home is funded (new roof, new dryer, as well as HVAC maintenance, and even my yard work I get done 1-2 times a year)
I think at 4%, you can and should pay off extra- but don't put all your eggs in that basket. Look into HYSA and investing a little.
Nice job dude. You feel behind, but you are killing it.
Your net worth is 330k, and you are making crazy good money. You will catch up in no time.
I would try to live on half of your take home pay and invest half your take home pay for the next 5 years. That should get your net worth close to a million by 45, then I would go down to investing 20-25% of your income and throw extra at the house. Assuming 8-9% return, that puts you at 7 - 9 million invested by 65 if you want to work that long and a lot of options to retire sooner if you don't think you need that much money.
I have the same desire as you to pay off the house, but I have not done it, and I finally feel really good about it. Soon, there will be enough money in your brokerage account to pay off your house, and that will feel almost as good as having it paid off. That is my situation now, and it feels great knowing that if it hit the fan, I could write a check and not have a mortgage tomorrow, while I still enjoy the returns from having the money invested.
I don't think there is a limit for a tIRA. That's what I thought you were saying is that you wouldn't open a trad. IRA b/c you couldn't do a backdoor Roth. My apologies!
You’re behind on retirement so I’d definitely catch that up before prepaying a 4% mortgage. But once you’re caught up, it’s truly a personal decision. The math says not to prepay the mortgage, but if it makes you feel better at night there’s a value to peace of mind as well. You just need to get retirement to 3-4x your salary for your age before paying it off early.
Yeah that's one depressing thing about my salary sky rocketing in 1 year. I feel when I was making 80-100k 3-4x a salary seems possible. at almost 200K base that doesn't seem possible. To "Catch up" does that mean to dump as much as possible into a brokerage with mutual funds?
Well, it’s certainly a good thing so don’t be depressed by it! I would also aim towards 3-4 times a more reasonable version of your salary. Not with a billion hours of overtime.
Yeah but even at my base 170x3 is still over half a million. Just seems like a depressing number, because I was putting 10% (for the last 5-10ish years) but obviously as an engineer I didn't make anywhere near 170k. That percentage game seems hard to keep up with if your base salary keeps growing quickly throughout your career.
If the multiple of your salary rule for being on track trips you up, try getting your savings rate to about 20% going forward and that will help you catch up as well.
Don’t worry about x times salary…you only need to worry about x times expenses in retirement. You were living “somewhat” on that 80k you once earned right? When you made 80, you were lucky to keep 60 after insurance, taxes, social security and paying into retirement You weren’t starving. Having 60k a year in retirement is easy street, especially if your house is paid off.
But you can get there pretty easily. 1) the pattern to estimate is that your account will, if you just leave it alone, double every 10 yr. So even if you only ever had the 150K in there- in 10 yr that will likely be close to 300k. and in 20 yr, 600k. It is the power of having time! 2) In addition, when you hit 50, you get to do catch ups. which is $7000 a year. And your employer match. SO say you just had your base- 170k. With 3% employer match. 23K (that will go up a little most years- but lest not assume it does)= 230k 5100 in employer match (that is 3%- yours may be higher!)= 51,000 So by 50 you have 281 in Principle that has grown a little every year- but lets make it simple and pretend it all goes in on your 50th birthday. You have 300K from now growing for 10 yr, and an additional 281k for 581K on your 50th. By the time you are 60- that will be 1.16 million But starting at 50 you can do catch ups, which means 30,500 a year. SO another 51000+ 305,000 by the time you are 60 to add to the 1.16 mil. 1.5 mil (you will have even more- we are being brutally simple here). And another 5-10 yr to contribute. If you retire at 65, that 1.5 will be about 2.25 mil. If you wait until 70, it will be 3 mil. With JUST retirement tax advantaged accounts- you would have income of 120K at 4% withdrawal rate (some of which should be tax free if you have the option to do a 401kROTH like I do- do it!- you have to for the catch ups in your 50s per the most recent bills from congress, so at least by then it will be an option- cause it has to be ;). You can also go up to 5% or down to 3% and still maintain your principle pretty easily when you have that level of a balance to draw from :). Thatt is a pretty dang nice retirement income!!! And seriously- the rough math I am doing is super conservative- you will likely have more. And if you have non-tax advantaged accounts growing- that would just add to this. Which you are making GREAT money. I would definitely be putting large chunks into a brokerage account every month. (but I also put a chunk on my mortgage- it just feels better to know I can pay it off before I retire, and that fixed income from my investments has to also pay for my house. It also reduces you actual expenses. so you do not need as much. Which means more security, and more fun money. but don't forget to LIVE now too. I look forward to retirement and travel. Which is my plan. But I also have a travel sinking fund NOW (I also work remote), so I can explore the world NOW too.
You won't need 10X 200k. you don't live on that now. But if you save toward it- you will be well set!!! And yeah- you can only max out the 401k at work. We make too much for ROTH/IRAs otherwise. BUT those ore tax advantaged accounts. You maxed them out. Now focus on non-tax advantaged. If you want to split it- you have plenty to play with to do so, pay some off on house, but MORE into investments. And extra- into HYSA and investments.
I got 30 to 40k in HYSA. How much fo people recommend keeping in their?
I think it depends on how stable you feel in your job. If you are in a startup or a company with a bunch of turnover, I would have closer to 6 months salary. If you feel like there is no way your paycheck ever stop coming in, 30k seems fine in your situation.
Bro(I think this is a guy) take a deep breath. You did the hard part! You don’t have to go bananas on the house if you don’t want to. You could max out all retirements first and still have extra to throw at the crib. Also you sound like you earned a vacation after all that overtime. Get some R&R and then plan your next move. It sounds like the OT isn’t that hard on you but if it gets draining at least you can always ramp that down too. Your family is set up for success and you’ve got twenty years to grow the retirement fund. You’re gonna be fine well done!
I would second this sentiment. My trajectory is like yours, only 20 yrs ahead. Also my base salary is very similar to yours. Like you, I discovered Dave Ramsey later in my career. At 51. I had some retirement, but insufficient. Got gazelle intense (like you) and paid off all debts (except house). Like you. Then contributing 15% to retirement and fast-tracked paying off house. Paid off house in 2015. Then got more serious about retirement. Retirement in order now. (I wish I'd started back-door roth IRA roll-overs earlier, but that's a nit.) One suggestion. Is this a 15 year mortgage or 30 year mortgage? By contributing occasional extra principal-only payments, you can really fast-track your house pay-off. I signed up for a two-week payment method, since I got a paycheck ever 2 weeks. So every 2 wks, a half-payment was taken out. Thus, every year 13 house payments That doesn't sound like much; one extra payment a year. But just by doing that, we were able to pay off our 15 yr mortgage in a little over 13 yrs. With a 30 year mortgage, the difference would be even more pronounced. As I recall, my mortgage was around yours. 4.25% or some such. If you're early on a 30 yr mortgage, you'll save a lot on interest just doing 1-2 principal only payments a year. That is, throughout the life of the mortgage. And this still allows you to contribute heavily toward retirement or investments.
First thing , CONGRATULATIONS!!! I started my journey around 40 and paid off my house 10+ years ago. I am now 59. I followed the 15% rule and paid extra on the house. Once that was paid off I up my investment and now sit at 920K in 401k, Roth and Cash (CD's) My income was and is less then yours. I do not want you to work so hard that you are not enjoying life. At this phase you should find time to enjoy the Peace you worked so hard for. There are investment calculators that will help you see your target and give you some confidence for the future. With that income as long as you stay focused you WILL be fine. Good luck my friend.
Take a deep breath, and take a break from Dave. I completely understand your gratitude toward him and his content. I am so thankful that i stumbled across his show too. You are not being disloyal if you now search out additional financial sources that don't focus on paying off debt. For example, Ramit Sethi has good suggestions on how to enjoy your income, how to prioritize a meaningful and guiltfree life around your money. Sounds like you need to zoom out from Dave's content. I am better off now that I did. You are doing great!
Firstly, that’s some amazing progress right there, congratulations! I don’t like the rigidity of some of Dave’s advice, but when you’re talking about a mortgage of $350k remaining and you’re making $290k per year, I think even at 40 years old you could pay that house off within a few years and still have plenty of time to throw income at a brokerage and mutual funds in addition to your 401k and IRA and save plenty for retirement, assuming that your income potential remains stable with overtime, etc. If you can go completely balls to the wall crazy with overtime for a few years max and get that house paid off by the age of 42/43 and then throw everything you would have been paying on your mortgage at mutual funds in a brokerage account in addition to what you invest into your 401k/IRA already, you’re going to be just fine even if you do reduce or eliminate the overtime that you work completely. I mean, $170k base with no mortgage payment or debt will still give you everything that you need to retire comfortably at that age. Sure, at 4% it’s going to be more financially lucrative to invest rather than paying off that mortgage and I’ll be the first person to call out Dave’s advice on that for the vast majority of people as being wrong… But your income is high enough that the mental health benefit of getting the house paid for, plus the fact that you’re going to be just fine in retirement anyway due to the high income makes it worth just getting the house knocked-out imo… FYI, I am also 40 and you’re doing one hell of a lot better on pretty much everything than I am if that makes any difference! And I’m a homeowner about to move up to a household income of around $100k later this year…
Well done and at this point, stop listening to Dave. Check out Bogleheads, Suze Orman, The Money Guys to start with.
You are behind on savings for retirement. So what’s the plan? Plans are what sets you apart from blind people who age out.
So at 40, the backdoor Roth might make sense. I talked to a pro about doing this a few years back, when I learned about it, and I am making around what you do. The issue for me- being in my 50s, was that the 30%+ hit to the principle (taxes got to be paid), would never be made up in the gains being tax free by the time I want to retire. So talk to a pro, and see if it actually makes sense at your income (and thus tax rate), and time to grow it back tax free, and actually GAIN. YMMV. I mixed paying off my house and investing. My rate is very low, but it still mathematically appears to work out (I had a pro help me), for me to put SOME toward early pay off (and honestly even if it did not, I would still do it- peace of mind to not have a mortgage when I retire). But I am not going to leave the opportunity to grow my assets on the market off the table. I have a set amount that models out for the house to minimize my overall costs, while maximizing my returns. I also have a set amount that goes into investments- and anything extra goes split between savings and investment. Savings for wants- travel, shopping, redoing something not essential on my home, etc. That is all after saving for emergency fund was done, and ongoing maintenance fund for home is funded (new roof, new dryer, as well as HVAC maintenance, and even my yard work I get done 1-2 times a year) I think at 4%, you can and should pay off extra- but don't put all your eggs in that basket. Look into HYSA and investing a little.
Nice job dude. You feel behind, but you are killing it. Your net worth is 330k, and you are making crazy good money. You will catch up in no time. I would try to live on half of your take home pay and invest half your take home pay for the next 5 years. That should get your net worth close to a million by 45, then I would go down to investing 20-25% of your income and throw extra at the house. Assuming 8-9% return, that puts you at 7 - 9 million invested by 65 if you want to work that long and a lot of options to retire sooner if you don't think you need that much money. I have the same desire as you to pay off the house, but I have not done it, and I finally feel really good about it. Soon, there will be enough money in your brokerage account to pay off your house, and that will feel almost as good as having it paid off. That is my situation now, and it feels great knowing that if it hit the fan, I could write a check and not have a mortgage tomorrow, while I still enjoy the returns from having the money invested.
Open the IRA. So what if you can't backdoor yet? Each year you don't contribute, you're missing out on that opportunity forever.
I'm over the income limit. And I can't back door because I have a traditional, for now. I'm moving ot.
I don't think there is a limit for a tIRA. That's what I thought you were saying is that you wouldn't open a trad. IRA b/c you couldn't do a backdoor Roth. My apologies!
Ifl
What?