Build Wealth With the 3 Bucket Strategy! (By Age) 2023 Edition
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- Опубліковано 6 лис 2024
- We believe there are three distinct taxable buckets you have the option of investing in for retirement. We’ll talk about how to balance those buckets by age and show a case study by age that shows what your buckets may look like!
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Bring confidence to your wealth building with simplified strategies from The Money Guy. Learn how to apply financial tactics that go beyond common sense and help you reach your money goals faster. Make your assets do the heavy lifting so you can quit worrying and start living a more fulfilled life.
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If I had 20 dollars for every show that started with Bo saying he's excited, I'd be able to retire early.
hehehe
I just know thats gonna be the first line of every episode. "Brian i am so excited about this one"
@@herbythechef7624 One day, just for fan service, he should say "Brian, I couldn't care less about this topic." take his mic off and walk off set.
If I had a nickel for every show that started with something *other than* Bo saying he's excited, I'd have two nickels. Which isn't a lot but it's weird that it happened twice.
@@thoryan3057 And if you're 20, that will be $8.81 when you're retired!
I'm jealous of Manny. I work for a hospital and I get 1.98% raises and they say "you should be happy with this". Great information as usual guys!
The 5% they arrived at is likely promotions averaged out over his career
I do think the need to redo this with reasonable raises. Other than larger periodic bumps to increase me from I to II to III to Sr to Consulting… I have seldom gotten a raise beyond 3. We all not in finance. Some of us have to keep the lights on for you.
My raises have been 2-3% for close to 30 years.
Are you staying in the exact same job with no increase in responsibilities for 40 years? No promotions? That's pretty lame
I’m 50 and screwed but can’t change the path only move forward…young people, take advantage of time is all I can say 🤷♂️
This is financial advice and I never give financial advice: DONT LEAVE DURING THE BEAR. If you don’t want to invest…learn. If you don’t want to learn…build. If you don’t want to build observe. DO SOMETHING…other than leave. There is so much opportunity here. Take advantage!
scum spam bots!
I can't imagine not Dollar Cost Averaging to lower my cost basis during a downturn.
One of the best opportunities to build wealth!
For those of us in our 50's, Roth wasn't available until 1997 (well into our 30's) and early on most companies didn't have 401K's we could contribute to (or even get an employer match) we were all heads down saving after tax and waiting for our pension vesting periods to kick in. That said.... some of us are not hurting :D We had to 'fall' into FOO and believe hyper-saving & investing would pull us up out of poverty. Love the show guys. Thanks for the advice and encouragement
Other than switching jobs I haven’t gotten a more than 2% raise my entire (short) career. Got 1% last year.
I think switching jobs and promotions would be how you'd achieve a net 5%/yr income increase
It would have to be, but in my line of work you’re either the boss or one of the regular employees so there isn’t really a growth track. Changing jobs would have to be the key there for me.
I generally got 2-3% raises my whole career and maybe a cup of coffee. The last raise I got they put a 6 x 12 wood board under my feet and raised me right up.
$50K a year with 5% pay raises every year sounds like a dream. $50K is well above the median salary where i live, it usually takes a bunch of years of experience to get to the median salary of $44K.
Opinions on the market diverge; some claim overvaluation due to rapid gains, while others cite strong economic fundamentals justifying high valuations. Raises concern for my $600K
equities going 8% up and 20% down. Should i hold on or sell off my positions and hold cash?.
Don't sell; avoid trying to time the market and incurring unnecessary taxes.
Stay grounded and focus on the long term. Or just seek counsel from a market strategist.
I agree. On my personal experience working with an investment advlsor, I currently have $756k in a well-diversified portfollo that has experienced exponential growth.
@@josephhughes9583 Please How do I find this financial counselor ?
She's known as 'Olivia Maria Lucas'. One of the finest portfolio managers in the field. She's widely recognized; you should take a look at her work.
She appears to be well-educated and well-read. I ran an online search on her name and came across her contact webpage; thank you for sharing.
I don't know who needs to hear this saving for a better investment is a great step to financial freedom you're saving a day off work
Yes it's been helpful to my general income, I make about an extra 2k weekly from my investment portfolio
There's a lot of investing options real estate, st ocks, ETFs, cr ypto but my best advice get a professional lead you into profitable one
I recommend Rachel Blanc. She's a good one I've been working with her for a good time
Growwealthywithrachel
This is a very helpful info thanks for sharing this information
This has to be my favorite episode so far. It speaks best to me. Thank you for speaking to the messy middle! Way to go Manny!
Love the show and format, but I feel 50k is a rather bold starting wage. For example the average household income in certain states is right around 50k. I still agree with your points, and with DR's behavior modifications it can still be done.
A 5% annual increase is a bigger issue I think. That's assuming quite a bit. No layoffs no setbacks no stagnation. Personally I've done a little better but I started at a very low salary in my 20s because I sold myself short.
@@TheDmonet yeah I think the 5% is a very ambitious average. Some years you’ll get 3% cost of living, other years you’ll get great raises/change positions and get 10%, some years you may stay the same and get pay cuts.
I started at 50k at 22 with a pretty normal non tech degree. It’s not that crazy at all really. The crazy thing imo is being able to save that much while being able to live
The maket trend can turn around very quickly. In fact, the indexes often switch from a bear market to a bull market when the news is at its worst and the mood of investrs is at its lowest point. I read an article of people that grossed profts up to $150k during this crash, what are the best stocks to buy now or put on a watchlist?
I agree, having a brokerage advisor for inveesting is genius! Not long ago amidst the pandemic crash in March 2020, I was really having inveesting nightmare prior touching base with a advisor. In a nutshell, i've accrued over $550k with the help of my advisor from an initial $120k investment thus far.
@@adenmall7596 that's impressive!, I could really use the expertise of this advisors , my portfolio has been down bad....who’s the person guiding you
@@cloudyblaze7916 Personally I work with Eleanor Annette Eckhaus a registered Investment advisor. Quite renowned, search her name to get in touch.
I just looked her up, Found her webpage & left a message hopefully she responds soon. Appreciate!!
This is the dream scenario so you need the other 2 D’s illustrated. It’s motivational to see how good it could be, and it can be reassuring to see it can still work out even if things go a bit sideways
Enjoy the info however I don't know where 5% yearly raises is the norm? I've been with the same company over 25 yrs and we only get 1-2% pay raises. And we had a couple yrs with NO raise. My spouse has worked 10yrs for same company with only 1 pay raise.
Do this topic for STOCK / BOND / CASH by age. Please and thank you. 👍
I'd love to hear one of these when you start investing at 40,45,50 etc. I'm in my mid 30s but won't be out of debt until 40 and wondering what retirement could look like for me.
Same, anyone I know, including myself at 25 was making ten bucks an hour in a awful retail job.
If starting in your 40s, like myself and I'm sure a whole lot of other people, we'd need to invest so much more money to reach the same end point by 65. However, we can still get somewhere.
Following the example, the ride would end after 25 years which would be similar to going from 25-50. Not ideal, especially after factoring in inflation, but still better than nothing. If you can invest more than 25% for those 25 years then it would still be quite good.
If you only have 25 years, hence start at 40 and did this, and assuming all things stay the same, you could end up with about 8x your salary by the time you retire. However, your expenses would be a fraction of your salary. Afterall, you likely paid off your house and you don't have to save for retirement, commute to work, and can cook and do more around the house yourself since you have all that extra time. Social security would be a bonus.
The most important thing you can do is avoid lifestyle inflation for as long as possible. The faster you build that snowball, the more time it has to grow bigger on its own... unless the market sucks.
I didn't get started until later (late 30's). I did invest some in my 20's and then stopped and while it wasn't a huge chunk of money I did have something when I finally started investing again. When I first started back I was only investing 8% and then quickly realized it wasn't enough after falling down the youtube rabbit hole of personal finance. I slowly started increasing my savings as I got life things cleaned up. Currently maxing my roth and 401k which should put me somewhere between 2 and 2.4m at 65 depending on the rate of return (6 or 7%). It is not hopeless by any means but retirement savings will have to be a major part of your financial picture moving forward.
TMG has a deliverable on their site called "How much to save each month to be a millionaire at 65". Looking at the sheet now, if you have $0 saved and start saving at 40 you would need to save $1,052 a month to have a million by 65 (double that amount for $2m). However, I would suggest, if you are able, to start saving some now even if it is a small percentage. I'm not sure what kind of debt you are tackling but while being out of debt is good, saving for retirement, especially if starting late, should also be a priority.
I love this case study format! Thanks team for all the work you put in to producing this show. Ya'll are game changers for helping people develop fundamental financial literacy 🎉
This is a great episode. I've been filling buckets for years after reading "Buckets of Money." I was ignorantly poking holes in my bucket by buying stupid stuff using debt while in the military. I went through FPU and now listen to you guys and Ramsey. I did benefit immensely by staying the course over time with my investments. I would have gotten here faster without doing OPM real estate. Thanx guys! Respect!
By far, my favorite of your videos! Showing how the process works is so eye opening to see!
5% extremely generous
That wage growth assumes a series of promotions over his first couple decades in the workforce.
5% Percent pay raise? Who is handing out those? I have been in Corporate America for over 20 years, the only time I have ever seen a 5% pay raise is during a promotion. Usually it is 1.5% to 2.5% For the first time ever during the pandemic I finally saw 3%
Those retirement calculations generally assume 5% raises in your 20s and 30s, and 3% raises after that. The 5% assumes a series of promotions leading to that wage growth.
If you were to average promos in addition to merit increases, 5% is not too far off. His final income at 49 was 161k, totally realistic
I doubt the person's income growth will be that linear either. If you change companies, you could be getting a 20 to 50 percent raise and then a 2 percent raise the year after. That's personally happened to me a couple of times. It averaging out to 5% per year seems pretty realistic from that viewpoint, in my opinion.
Ya mine is usually around 3% merit increase, but I’ve gotten several raises for promotions or off-cycle raises that were 10-20%
My first year with a big company, I got a 4% merit increase plus a substantial bonus. One of my coworkers got a 6% increase. 2% with my company is "congrats you showed up and didn't do anything egregiously wrong." Maybe these numbers are calculating an average including promotions, merit increases, etc.
My first job was terrible after college at $24K in 2010. Got up to $50K by 2014. I am 36 now and at $77K. It was very rare to see a raise above 3% without jumping companies. I wish I was "Manny" but these increases are wildly inconsistent in my experience over the years. I was dumb in my 20s without a doubt when it came to finances. Right now I am at $80K between my 401 & Roth IRA. Trying to kick it into overdrive to catch up (Maxing out the Roth the past 2 years) and taking the employer match on the 401k (5%). Have no car, student loan debt since paying those off the past 3-5 years and finally bought a home at 35 (4.375% rate so not great or bad). I'm single and no bumble or Hinge super premium plus will save me but hope Brian and Bo will light a fire under my butt to kick it into overdrive. Love the show!
This is an awesome case study, I would love to see something similar for military finance. In my experience, many service members overestimate their pension and use it to excuse financial irresponsibility. So having an easy to digest case study would probably help thousands of people!
Great video, love the content! 31 years young and been saving/investing about 1/3 of our income! This keeps me motivated to keep going!
Yes best one for me too, outlines it so clearly! I wish I was younger when I saw this, but for my kid, it's an amazing blueprint.
Love the case study, and would love to see more of this type of content going forward!
Great info.! The only issue I have, is with the assumption used for the calculation, that everyone gets an annual pay increase. I don’t factor potential pay increases into my calculations.
5% raises year over year is very unrealistic. The only way to achieve that is to change jobs each year and negotiate a higher salary each time.
I'm inclined to disagree. I beat the 5% year over year since 2019. It doesn't matter how many times you job hop, it matters who your employed by.
I agree, 5% is unrealistic. Congrats for achieving 5% since 2019 but… a 5% rate is much more difficult to achieve over the long term. Especially when you get further along in your career. Would love to see the results if TMG used 3% instead. I have a feeling it would have a huge impact.
@@wrawler4481 the percentage of companies that consistently provide 5% raises must be miniscule. If you've found that company without job hopping then you're very lucky. In my industry even a bonus is quite rare even at the top. Companies will bait you in with promise of bonuses and never deliver. Even when you do get a bonus, you have a 50% tax rate on it. So it's more to do with your line of work and your company. For most folks, job hopping will be the way to have some control over their financial future.
@@dandulik16735% is unrealistic if you stay with the same company your entire career and never try to be appropriately compensated for your increasing skills and experience. If you job hop once and increase your salary by 40%, that is 8 years worth of 5% increases.
A 2.5% annual pay raise will be more realistic
After reading these comments, I'm very grateful to work for a company that gives a 4% cost of living increase yearly. 5% would be awesome!
Great content! Love the example of Manny's situation. Thank you for making great content and for being great teachers!
5% pay raise every year is very unrealistic…
"We are going to assume that Manny gets a 5% pay raise every year."
"We are going to assume that Manny gets reasonable pay raises."
Alright, I'm out of this one.
i always got 3% unless I jumped to a higher pay grade level which was infrequent.
“Employer offers 401k”
“Employer has 401k match “
This video is not based in reality
9%return every year, never a down year😂
@rickybobby9885 no, please explain what have most averages been over the last 10-20 years?
As long as you commit to saving, and continue doin it you can be a millionaire!
I'm really glad I found you guys! I'm 35 and plan on retiring in my early 40's, but I had no idea up until about two years ago about the logistics of how that would work. I realized from your content that the after tax bucket is my 'liquidity bridge' to 59.5.
Yes, you'll want that after tax money to carry you. You can also use the money you put in your Roth IRA if you need to.
@@TheFirstRealChewy Not without penalty he can't use his roth money.
you can withdraw the money you contributed without penalty
Have you heard of the Roth conversion ladder yet?
@@ordinaryhuman5645 I have! While I am aware of it, I'd prefer not to tap the Roth or tax deferred accounts until much later if possible to allow the opportunity to fulfill growth potential. My income is such that I should be able to aggressively invest in a taxable brokerage and allow both Roth and tax deferred accounts to grow undisturbed.
UK viewer but I find a lot of the advice transferrable, so thanks for it! We have employee private pensions, and we have an ISA equivalent to the IRA. 36m and 34f. Decent earnings and wealth in progress, but living in London with a young child, definitely relate to "messy middle"
Just updated numbers and we're at £381K. Looking to add 70K a year it and on track so far. We were pretty late to start to missed the 20s, but at least fortunate to be able to start catching up now.
When life happens, starting to aggressively investing doesn’t happen until later in the mid 30’s for many. Between school and finding that first stable job, it is a tough time. During these times though, not getting into cc debt or student loans is best thing you could do.
Dudes, Many scares me. A lot of us did not have Roth 401k access till our 40s.... I am happy to have 10+% of my retirment savings in Roth.
I know that in a top tax bracket, traditional Ira makes mathematical sense over Roth. But I don’t think it works that way for most people. I think that in most situations, people aren’t going to invest the money they saved on taxes by choosing traditional contributions. They’re going to spend it. I don’t judge high earners that still choose Roth 401k. And I have yet to meet someone that was upset because they had too many Roth assets when they retired.
This is super important! Investing is necessary for setting yourself up for success financially in the future!, i will forever be indebted to you, you've changed my whole life continue to preach about your name for the world to hear you've saved me from a huge financial debt with just little investment, thanks so much Mrs.Ava Rowena
You invest with Mrs Ava Rowena? Wow that woman has been a blessing to me and my family.
🙂 *You can communicate with her on telegam with the user name below*
👉 @avarowena
I was skeptical at first until I decided to try. It's huge returns is awesome! I can't say much.
Sorry but she's horrible.
I get 407 billion % return and just bought the moon with my investment advisor.
I will soon purchase this entire solar system.
Another great and motivating video! Well done, guys!
It'd be cool to see ya'll do a case study like this for the median household incomes by age. Median, because outliers like old Gusset-Musk and Bezos skew the averages immensely and it's not representative to the overall population. Median income at 25? only $31,000. At 35? only $45,000. I love the aspirational nature of your content and it's helped me to finally get to 60k at 34 with a net worth of 250k. Love the show!
While investors are preparing to celebrate next year's soft landing, economic data doesn't appear to be cooperating, I’ve heard testimonies of people accruing over $250k this red period. What measures can I take to ensure this?
A solid strategy can be a key component of an investor’s portfolio. Well, the bigger the risk, the bigger the reward and such impeccable decisions are better guided by professionals.
Agreed, instead of panic or following a hearsay, I simply adopted the service of an advisor early 2020 amid covid-outbreak, and so far, I've attained my most measurable financial milestone of $650k after subsequent investments.>
How do I find this financial counselor ?
I've shuffled through a few advisors in the past, but settled with 'Nicole Desiree Simon' her service is exemplary. I'd suggest you research her further on your browser, sure you'll find her basic info.
It'd be awesome to see a comparison of this projection vs. the case where Manny followed Dave Rasmey's Baby Steps.
I definitely agree with some of the critical comments here saying that 5% yearly raises is not normal beyond a certain point. Very few careers have people making $300k+! I think you'd get something much more realistic giving Manny a flat 2k raise every year, so by the time he's 65 he's making $128k. That's something that's much more common and achievable in most careers. Generating a spreadsheet with that number, and the 3% employer match, he'd still retire with ~$4 million anyway.
Manny isn't normal though. He's a mutant.
Do you like non deferred accounts more for people who only have to claim say half of their income on their taxes, ie: making about 90k but 45k or so is non taxable allowances, so they stay in a low enough bracket that dividends and some capital gains are not taxed.
At 70, is there any advantage to have a "backdoor" Roth or just leave my rollover 401k alone and still making 9% till 75. Thanks for your belated info. Wish you AND the internet were there 40 years ago 😊
Is it normal that people get an annual 5% raise??
In my 25 year corporate career as a cpa, I’ve had 6.1% compound annual growth rate on my compensation, this includes promotions and incentive compensation, but I have not experienced the rates of return modeled for Manny, my returns average less than 7% over the last 25 years, partly due to poor 401k options I guess
I think the early 9.5% did start Manny off too strong. Historically, 8.X isn't unreasonable, so an 8% gets quoted a lot. 7% is usually a good conservatism. Manny got to that at age 50.
401k limited options may also include higher fees. Total market funds at 0.02% are common now. Your 401k option may be 0.25%. That can add up over time. That flexibility outside tends to make Roth IRA the next bucket to full after 401K company matching.
Starting at age 25 earning 50k and a 5% raise per year? Is this standard?
No. Not it is not.
Alot of TMGS take into account the middle class type of salary. What about those individuals that make $30k-43k/year which are considered low income? Alot of jobs don't start out at $50k
Was Manny renting an apartment for the whole 40 years? I feel like a paid off house could add in another 300k to 500k into the net wealth statement, as well as reducing monthly expenses once the home is owned outright.
I understand the 5% scheduled raises to paint the picture of someone that climbs some type of ladder/rank structure but I do not believe the average American will ever get even close to 160k a year even before they retire. I believe reaching 70/80k would be most common. With that being said, thank you for putting information out there and helping people go along the right path
Is that income trajectory the norm?
Everyone I know struggled to make more than 25-27K per year until their late 30s? Is that just a reflection of my friend group and where we lived at the time?
How does LTC factor into the bucket strategy? One thought is that if I load up my pre-tax bucket (and invest tax savings in a roth), I can avoid paying for an expensive LTC policy since when I eventually start paying for LTC ($2 million x 5%= $100k ltc payout) it will count as a medical deduction and not be taxed at all (or very little)
Could you give an example of After-Tax accounts? Do they include things like a normal IRA, mutual funds, etc?
Roth IRA would be tax free, Traditional Ira would be tax deferred, and brokerage account would be an example of an after tax account.
While I love this show and appreciate all of the content, this example seems out of the ordinary.
- I do understand you preface this with a the sample set being a financial mutant. But, starting at 25 with a 50k salary and ending with a 350k salary is quite the swing.
Also, an HSA is tough outside of your 20's. I wish I could still contribute, but the HD plans are horrible. As soon as you have kids, 1 medical issue, etc... it is no longer cost effective.
The current median income for people in their 60's is about 57k, actually lower than 45 year olds. Again, I understand the case study is a "financial mutant" but there is a clear trend of lower median salary between 45 and 65.
What is in the tax deferred bucket?
Most jobs hand out most 3% or less raises year to year, not counting promotions. 3% percent annual raises is what a good company does at a minimum, but most are not good companies.
How is the Tax Free bucket not exactly the same as after tax? You contribute to your Roth with after tax dollars… Is that a regular brokerage?
I think the difference is the tax free (Roth) has tax free earnings while a brokerage account does not. But you are correct, contributions have been already taxed in both.
Here's my question. Should one still prioritize their Roth if they owe taxes? I feel like if I owe taxes I should max out the tax deferred bucket, before contributing to my Roth.
Roth is so overrated due to tax brackets being a thing. It feels like all financial advisors making YT content have this massive blind spot.
How do you max out on 401k plus IRA? Seems like I need to be making a shit ton of money to max it out…let alone do a back door.
Both accounts in 2023=$29k. This is 25% of a $116k income. Above average, for sure.
@@arh1234 lol so in other words I would have 56k left after taxes and doing the 25%.
@@CrayonEater94 Yes! $4.7k/mo to spend in your financial mutant life😁
This is outstanding in LCOL areas; ideal for stealth weath most places; not so great in HCOL areas😬
@@arh1234 agree that it depends on the area. $4700 a month -2k mortgage, -250 utilities, -400 health insurance, -200 gas, -170 car insurance, -115 cell phone bill, -45 wifi, -500 groceries, -893 daycare/child support, -70 tolls, I’m left with less than 100 bucks a month to have fun lol. And thats just me with one kid and single living in Tampa. I think 25% is a little excessive. It would be good for a single person with no responsibilities or someone that makes enough to save the max and have plenty of room to do other things. I think it should be at least 25% after taxes.
Love the show and content but you guys should really do some examples with less than ideal conditions. A 25 year old investing 25% and following the FOO to a T is a unicorn. 5% raises every year? Plausible but not likely. Most people start investing later because they don't appreciate its importance and / or were never taught about saving for retirement. These ideal scenarios with the kid who started investing at age 12 and is a deca-millionaire by 25 are debilitating to normal people. We need scenarios for real people not the idealized investor.
Could someone let me know if there was an issue with my math here? Manny starts at $50K per year at 5% raises for 40 years. Wouldn't Manny be at an income of ~$193,070?
Future Value = $50,000 * (1.05)^40
Future Value ≈ $193,070
How about guidance for those that have a pension ( not much) and can’t contribute to a tax-deferred and don’t qualify for a Roth. I have done the back door Roth 3 times but I am tired of giving the State of CA tax revenue when o don’t even plan on living here in retirement. I have 1 IRA and 1 Self Directed IRA with about $20,000 of precious metals. How would you do a back door with the aggregation rules on that? If I open an after tax IRA and then move the money to a Roth, I still have the aggregation rule and pay CA income tax. I’m 60, BTW. But I would like to have money grow that is tax free.
I wish I had a 401k because of this. That’s right where I am but I have to save the full amount but I’m at 22.2% with other things/repairs to pay for.
@The Money Guy Show - Just as you did this video with Manny the Mutant. Can you please do one for Late Larry?
I think it would be highly productive if you made a video that showed the actual average 401k value for each decile age before retirement.
Since it would be backward-engineered to see what's missing and what is needed for each age, you'd start with 59 years old, then 49, then 39.
So if the average 59 year old has 250k (just a guess), what does he need to do, and which bucket should he be using.
Y'all very realistic on 25% savings. Wave by by to social security. Thanks boomers
This is great! but I think a 352k a year solo income might be a stretcher for most people lol... However, good for Manny... Party on Brother!!
They seem to be assuming you won't use the entire HSA balance on health care expenses for the year. That's not been my experience. Insurance companies peg the deductible in their high deductible health plans to that year's HSA limit or close to it. The tax advantages are still good, though, kind of like a 20% discount on all my health care expenses for the year.
Loved the Manny the Mutant exercise!
Must be nice to get a 5% increase every yr….
Unfortunately, Manny is not a average American worker because average American workers don’t get 5% pay increases every year
I'm up to the end of the 30's and don't think I've heard a mention of ROI once, are these numbers purely contribution amounts with no ROI at all?
Just got the ROI explanation at over 25 minutes in, it's a little delayed to not include such a key aspect of the math.
"the lion share of this is tax free" .... um... ? no.... the lions share are the 25% of post-tax savings.
i'm confused. i mathed it out as:
the 401k 6% + 3% match = $24,865.34 (26.47%)
25% savings of GROSS = $69,070.39 (73.53%)
for a total portfolio of = $93,935.73
This has provided much needed clarity for me as a 32 y/o looking to retire at 55. Thank you!
You think that the messy middle is getting pushed out 5-7 years but that is good because you can put more away early and let them compound.
Not the bucket-strategy that I was hoping to get their opinion on. I was thinking of the Christine Benz approach..and hoping to get their opinion on that. They are talking " buckets", from more of a tax-strategy viewpoint.
Not to take away anything these guys do. They have great information, but this is not a typical journey. The only way to get the wages and raises in the example is if he/she moved up the food chain at work. No regular worker gets 5% raises every year. They are lucky to see 5% once in a working career. I've been in my career for 18 years and haven't seen anything like that yet. 100k at 39 is basically getting into management, 155k is getting into upper management. Thats not an everybody situation. Would be a more realistic study if raises were around 2% per year for a majority anyway. They still bring home the concept with investing 25% and such which is good information but they could have made this much more relatable with more realistic numbers.
I feel like I’m watching a football game halftime show. 😂
Did I hear them correctly that young savers should focus on the Tax Free bucket as much as possible until getting into a >30% tax bracket?
I am currently about to turn 34 making 90k salary so am in the 24% tax bracket … my employer offers a roth 401k option.
Should I be prioritizing this bucket IN ADDITION to my separate Roth IRA and only put money into the tax deferred bucket once I get more pay raises and get into the >30% tax brackets?
Someone please chime in and thanks!
yes, they said that, and yes, if you like that advice, that is what they are suggesting you do. however, they may also say that depending on the number of responsbilities you have (like if you have kids and a mortgage), you may chose to take that tax break now rather than in the future.
@@jasper6164 Thank you !
Are you including state taxes, if any, into your tax calculation?
- That may impact your choice.
@@miked412 I'm not actually. Care to shed some light? I just spoke to an advisor I have access to through my job and they also advised me to prioritize Roth 401K just given my current tax bracket and age.
Would love more info on this stuff though, I get fired up over this and want to make sure I am making the best decision for my future self without sacrificing too much today.
@@bpenguin for 2023, over $95,375 is 24% (federal).
So, I'd more consider your income to be 22% - because most or all of it will be under the 24%.
- Consider it however you are most comfortable considering it.
- If you are just over the 24%, if you have anything in the cafeteria plan (health insurance etc), it should bring you below the 24%.
To more specifically answer your question, adding your state taxes into the equation gives you a better picture of the savings.
- I.e. if you are in CA, you are paying 22% in federal *and* 9.3% in CA state taxes (9.3% in 2023 for > $66,296), you are effectively paying 31.3% in taxes.
- Depending on your estimated tax bracket in retirement (there are tools to help - but they are only an estimate), helps answer the pre/post tax question.
- You can save 31.3% on taxes now vs paying xx% in retirement.
- Where/when is your need greater?
- What are the opportunity costs associated with the different decisions?
You did not figure in divorce which happens to 50% of people. More so when you’re squeezing pennies as the wife will not be so understanding. Child support and alimony screws the whole plan up.
This is the first thing i thought, 216k/year at 55 is not normal even when accounting for inflation
5% raises every year?? Unheard of for most of us. Otherwise, excellent info!
Informative video but I'm willing to bet your "Manny the Mutant" case represents less than 10% of 25 year olds 🤷♂️. Most 25 year olds aren't thinking about building wealth, nor do they have a starting salary of $50k. Just my thinking.
Not to mention, after saving 25% of his salary, he's left with 37,500, and after taxes, he's left with closer to 25k. Idk any 25 year old today that could survive on 25k a year.
Mutant Manny is saving above 25% if you add his employer match. Overachiever Manny should be his name.
The 5% annual pay raise assumption is quite a stretch. But love the rest of the content.
5% I'd imagine includes promotion. I was making 40k a year after college and I'm over 120k now in 8 years. My current average is 17% a year.
Amazing content!
I didn't start making money that early in my life.
I don't see how HSAs make sense, but maybe because I buy my own insurance. For me, I have to pay $315/mo so I can put an additional 6k? into an account and still have a deductible of 8K. Paying 4k a year to save 6K tax free with the risk of paying 8k out of pocket makes no sense.
50k at 25 is not the average, but assume that Manny is actually a couple and the numbers feel far more "average" and "attainable"
To be fair, this is "Manny the Mutant" and not "Annie the Average".
- But, I would like to see the "Annie the Average" case....
Love you guys, but seriously, most people cannot invest 25% from the start. Also, again, most people do not get a 5% pay raise every year.
I think 107k salary adjusted for inflation at the end of a career is too high of an assumption.
Correct. It is not supported by the mean nor median.
To be fair, this is "Manny the Mutant", definitely not "Annie the Average".
As exciting as you guys sound for Manny having 6M at 65...how do you guys feel about Mannys average life expectancy of around 75...he has about 10 years to enjoy that 6M.
I work with seniors. One just died at 101. Most of them are in their 80s. Having peace of mind that you've saved money when you get to your 40s, 50s, 60s etc is invaluable.
@@Danny... I'm all for saving and having 'enough', but after reading die with zero it changed my perspective.
6 percent match AND just found out i have a roth option
6 million dollar Manny. 😂
We sold our rental homes to provide the cash we will need until we will turn 59 1/2
Great episode! Love the examples and maths. Very motivational.
I recently made more purchases. Saving money for a market downturn is likewise a bad idea. There are numerous ways to look at recessions and depressions, we cannot always expect to make large returns, and taking chances is better than doing nothing. The bottom line is that you will achieve remarkable results by diversifying your portfolio and making wise decisions. My portfolio's raw earnings rose by $608k in just 5 months
I don’t get why Manny is still doing Roth 401k in his 30s/40s…but it may be close to a wash at that point
I’m 35 and top of 22% bracket, and it feels like a wash as most of my funds will probably be deployed at 12% in retirement (and certainly not higher than 22% unless there are increases).
5% raises?!?! I’ve only had one of those in 14 years, try this with 1.5%-2% raises, won’t be the 6 million dollar Manny then lol