Aight, I’m 24 years old, wife is the same age. We’ll have been married for 3 years in a week. I work part time and my wife works full time. I’ve got 2 years left in engineering school, finally beginning to realize that it’s never too early to start thinking about retiring. Our budget is such that we only have about an extra $100 a month for savings currently. If y’all were in our shoes, where would you start investing for the future?

Update: Thanks y'all for everything. Decided to take the plunge and setup a Roth IRA through Vanguard. Gonna start putting that $100 a month in and probably a decent portion of this years tax return in as well. Now the goal is to get that monthly contribution amount up through budgeting and being increasingly frugal. Current employer doesn’t have a 401k option, but once I’m working for one that does, I’ll be prioritizing that as a retirement account too.

https://www.bogleheads.org/wiki/Getting_started

1. Purchase a house

2. Start maxing out 401K contributions

Figure out how to save WAY more than $100/month.  Sell a car.  Eat rice and beans.  $100 is nothing.  You'll only have $180k in 40 years at that rate.

A) search for retirement savings calculator on the googles
B) figure out how to get to that number.  Probably need to go to $18k/year in 401k contributions.

You going to need $millions to retire comfortably at 65.

Sign up for this.  It is worth $149.  Big emphasis on the value of time in investments, retirement, etc.  Do the self-paced without instructor.  Log in and learn at your convenience.  Though I recommend working with a good broker or finacial advisor, this will help you "speak their language."

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......

Never finance depreciating assets.

401K or Roth, invested in the stock market, or mutual funds invested in the stock market.

Homeownership is out of our budget currently. Not to mention, we don’t anticipate staying in our current area once I graduate. What would you do if your employer doesn’t do 401k contributions? Is it still better to do that than say a Roth IRA?

We’re always trying to be frugal and have more for savings. Right now our focus is start putting something away and when I graduate and have a more professional career, we’ll be maxing out 401k contributions. It doesn’t help that neither of our current employers offer 401k matching programs.

We’ve done well there. Both cars are 15 years or older, one paid off and one with a relatively small payment. Both get the repairs done by me. Financing a new or fairly new car has never been an option for us and I don’t think it ever will be.

Between the 401k or Roth, which would you prioritize? Neither employer does 401k contributions so it’s just our money being saved.

My biggest piece of advice is to start and worry about "perfect" later after you are already underway.  Given that you are only talking about $100 per month, one really simple "starter plan" would be:

1)  Find a suitable online broker and open a Roth IRA

2)  Contribute the $100 per month you are planning

3)  Invest that $100 per month in a total market fund like VTI (etf) or VTSAX (mutual fund)

4)  Make sure "dividend reinvestment" aka "DRIP" is turned on for this position

5)  Automate steps #2 and #3 to whatever degree possible.  These should be built in functions at whatever broker you chose.  What I mean by that is you should be able to set it up so your broker automatically withdraws $100 from your checking account once per month, brings it into your Roth IRA, and automatically invests it in the fund.

This is a "do no harm" option that gets you started.  You can wring your hands about asset allocation or upping your monthly savings rate but you are just talking about getting off the starting blocks right now and everything starts with a first step.  The automation is important because it keeps you on track even if you get distracted with life.

If you've got a 401k you can contribute to, that's another option.  It's always worth taking advantage of employer matches, if one exists.

This whole thing doesn't work unless you stick with it diligently for the next 30-40 years so whatever you can do to get on track and resist every attempt to derail yourself is what you need to do.

This is kinda what I’ve been thinking. $100 a month is obviously not what we’re trying to stick with for 40+ years, it’s just what we can afford right now. I’ll do some digging on what you mentioned, thank you much.

Do what woodsie said, I like fidelity.  Both fidelity and vanguard have extremely low fee index funds.  I would do the lowest cost s&p500 index fund there is - FXAIX is fidelity's fund.  
You can withdraw the roth principal anytime without penalty so it's a great way to save for a house down payment also.  

Nothing wrong with $100/month.  I wasn't saving that when I was 24.
You're almost an engineer so you should appreciate the time value of money and compounding interest - if you save $600/month for 20 years at the historical s&p500 rate of return you'll have about $500k.  Do it for 30 years and you'll have well over $1 million.
Get into the habit of saving something now and it'll be easy later when you're making lots more money.

My dad always told me I'd be rich if I followed his two easy steps - spend less than you earn and avoid taxes whenever possible.  



If neither of you have an employer sponsored pre-tax 401k then you can do a pre-tax individual IRA.  I would avoid that though - it can add lots of tax complexity and isn't worth it for $100/month for two years until you finish school.  
I would just put it in a roth ira since you can take the contributions out without penalty should you need to.  

Thank you for the info. I’m new to a lot of this financial stuff, and while my parents have taught me to be frugal and keep a budget, investing wasn’t ever a discussion topic. I’ll take some of this info to my wife later and do some research as well. I’m just trying to start while I’ve got time on my side.

The best thing is that you have youth on your side. By the time your retirement comes around you'll be fine. Its us in our 50s that are stuck if no planning was made!

Do the Roth thing because though taxes blow now just think of how high they'll be in 30 years man!

Order of operations to be most tax efficient (for most of us):

1.  Emergency fund (3-6 months of expenses. More if you can’t replace you income in that timeframe)
2. Contribute to employer plan up to the full employer match. If no match, skip this step.
3. Max HSA (triple tax advantaged). Don’t use this to pay for medical expenses if you can help it
4. Get rid of high interest debt
5. Roth IRA for you/wife up to the max (backdoor/mega backdoor if you hit income limits)
6. Go back and max employer plan especially if it has Roth options and your federal tax rate is not above 24%. If tax rate is over 24%, pre-tax may make the most sense.
7. If you didn’t use the mega backdoor option in step 5, consider doing that now as long as your federal tax rate is 24% or less.
8. Consider Roth conversions based on age, current tax rate and pre-tax balance's
9. Brokerage, rental assets
10. Speculation (e.g crypto).
11. Full term life/annuities

If you do a ROTH you will pay the taxes up front - with a 401k you can bank the money you would have paid in taxes and earn interest over 30-40 years.  So I lean towards a 401k.  

The OP sounds like he is in a low tax bracket now.  In that case, a Roth makes sense. Should he get the degree and start making bank, then think of traditional.

I'm 64 and the bulk of my savings is in traditional 401k.   I wish I had more in a roth, but wasn't available when I started out.

For sure, no doubt about it.  

The biggest thing is to get started.  The truth of the matter is that you can get 5 different opinions and none of them are wrong so just breaking free from paralysis from analysis is a good first step.  My idea is just one idea that I'm confident will do no harm relatively speaking and you may evolve it into something better over time.

You are going to know a lot more about all this stuff after you get started than you do today no matter what.

Even if he is only paying 10% in taxes I'd think it would be better to save that 10% and let it compound in interest over his working life.

When you retire you tend to be in a fairly low tax rate and many folks move to a no income tax state.

Here's a good article from Fidelity.

You can probably find something similar from TD Ameritrade or Charles Schwab or any other online broker.

Stay away from the full service brokers like Edward Jones.  They'll charge you 2% or more for every trade whereas the online brokers have free trading.

Good luck.

If listening to a guy explaining it is easier to digest, find the podcast named below. I think FALARAK suggested this in a different, related thread. The host Andy Panko is a plainjane American who runs through all the various aspects, and dives into detail as necessary. He's up to about 85 episodes.

Retirement Planning Education

Income taxes are at historical lows right now.  Safe money says they will be higher in the future.  
In fact, tax brackets for 2026 will reset to pre-TCJA levels which are significantly higher than current brackets.  

Deferring taxes is not always the best answer.

I am glad I even survived financially to reach what appears to be "retirement."  

But one thing that was a surprise/shock to me is that Social Security payments are taxed as income!!!

It wasn't set up that way, wasn't that way for my parents, and wasn't always that way, but they changed it in 1983 thanks to Senator Joe Biden.

Congrats on taking that first step.  What are you going to invest in within that IRA?

I chose two of the different Vanguard ETFs, VO and VTI, to start with. Once I’ve got the minimum contribution for one of their mutual funds, I may switch to one of those after some research.

Excellent.  I don't know if there is a super compelling reason to switch from an ETF to a Mutual Fund but I don't think it will hurt you either.  There are slight differences but presuming they are apples to apples in terms of holdings, there isn't massive practical difference between investing in an ETF and a traditional Mutual Fund.  Maybe a good next homework assignment is to google "ETFs vs Mutual Funds" and just read some of the articles that come up.

Regarding VTI and VO, I think that's totally fine but just as another opportunity to learn I can tell you that VTI encompasses 99.7% of the companies held within VO.  What you are doing by owning both is putting a heavier weighting than normal on mid-cap stocks.  Once again on the theme of "there are lots of right answers", I don't think this is necessarily a bad thing or something that will hurt you but rather just another opportunity to learn and understand what you've got.  

Attached File


VO did 9.66% annualized over the last 10 years

VTI did 12.01% annualized over the last 10 years but the REASON is primarily because mega caps like Apple, Google, Meta, and Nvidia have had one hell of a run over the last decade and total market funds like VTI are weighted heavily in mega caps even though they ostensibly span the whole market.  

Maybe mid-caps out perform the total market over the next 10 years, maybe they don't.  I couldn't tell you.  What works best does historically change from time to time so I wouldn't sweat it too much.  Either way those are both quality low cost index funds.  All I'm saying is if you wanted to simplify and go 100% VTI, I think you could.  But you definitely don't have to and I don't think you'll be harmed if you don't.

You are already ahead of 90% of the pack already with low cost index funds.  We're just splitting hairs at this point which is where the vast majority of investing discussion occurs IMHO.

My thought process was just having two different holdings with a history of good returns wouldn’t hurt me. I’ve got 40ish years for it to just sit there. I was going to move it into one of their targeted retirement mutual funds for 2065, but maybe I’ll hold off depending what the research teaches me.

Another thing for your education to check out is the concept of a three fund portfolio:

https://www.bogleheads.org/wiki/Three-fund_portfolio

For Vanguard, this could look like this:

Attached File


The basic idea is that you can accomplish everything with just three funds and then the only thing you've got to manage is your allocation percentage between those three funds as you age.

I don't think this is something that is important TODAY as you are just getting money in the market but maybe after 5+ years when you've got a five digit amount saved you can start to think about formalizing a plan like this.

In some cases, there's a highly automated version of this called a "Target Date Fund".  Vanguard has target date funds which are essentially four fund portfolios built into a single mutual fund.  They handle all of the asset allocation for your based on your target retirement date.  Normally people shit on target date funds because they are fee heavy but Vanguard's product in particular is exceptionally efficient with low fees.  The only other thing I can say about target date funds is that some people consider them to be overly conservative allocating too much to bonds at too young of an age.  You can offset this to some degree by picking a target date fund that is aimed at a date that is later than you actual retirement date.  The later the target date, the more aggressively the fund is allocated at the start.

https://investor.vanguard.com/investment-products/mutual-funds/target-retirement-funds

I like what you are doing right now personally but if you want a true "Fire and Forget" option for decades on end, then target date funds aren't the dumbest thing you could do.

Don't mistake any of this stuff I'm feeding you as encouragement to change anything.  This is just for the sake of learning.  If you stuck with what you have right now diligently for the next 40 years, you'd probably still come out ahead of the vast majority of people easily.

It's a fair thought process.  My only comment on that is that total market funds like VTI already have diversification built being that it holds 3760 different stocks.  VO is comprised of those exact same stocks.

Where your thought process is more relevant is when you are buying individual stocks and you don't want to have all your eggs in one basket.  The whole point of ETFs / Mutual Funds is that you can get ultra high levels of diversification with a single investment.

But like I said, you are doing no harm IMHO with what you've got.  Having two good funds, even if one overlaps the other 99.7%, is still two good funds.

I didn’t realize VO had most of the stocks as VTI to be honest. I just went and changed my first trade to be all VTI and I’ll just keep doing that. Now just to wait it out for 40 years and keep putting money in.

The distinction between vo and vti is relatively minor.  Returns will vary between them but over the long term you can't predict which will do better.  
The most important thing is to realize they are both stock funds - if the stock market does well they do well and if the stock market is down they will be down.  

There's so many theories about how to save and invest money it has to be a full time job to know everything, but the 90/10 rule applies - for 10% of the effort you can get 90% of the results.  
What matters now is that time is on your side - pump all your savings into the stock market via low fee index funds and reevaluate in a decade.  


I'll say it again: pre-tax is never a bad choice, but it might not be the best choice.  

Sounds like you're on your way. The only thing I would add is that if and when you have kids, you should look into setting up a 529 education savings account.

I probably will, I’m trying not to leave my future kids in the same boat as I was for college. Or just investing in general. Gonna be preparing to teach them when they come of age so they can be well off early on if they listen.

My plan once I get to a company with a 401k is to probably contribute up to the company match, max out my Roth IRA, and then contribute what’s left of my retirement budget back into my 401k. Gonna have to do some calculations, but I figure that’s a decent plan to start.

I think that's a solid plan.  It's hard to turn down any company match.

My list:

1. Pay off all toxic debt (credit cards, high interest rates).
2. NEVER carry a balance on a credit card month to month.  This is called "paying the stupid tax".
3. Build an emergency fund of 6-12 months of *expenses* and keep it liquid, such as in a High Yield Savings Account (HYSA) or Money Market Fund (MMF)
4. Contribute to your 401k up to the company match maximum.
5. Contribute to an HSA if offered up to the maximum allowed.
6. Contribute to a ROTH IRA (unless income ineligible, then use Backdoor Roth IRA method. https://thecollegeinvestor.com/38006/how-to-do-a-backdoor-roth-ira  
7. If offered a Company Stock plan (ESPP/ESOP) that gives you shares at a discount, AND you can sell immediately upon stock purchase, contribute the maximum amount to this program and sell each time.
8. Go back and finish contributing to the 401k plan, up to the maximum limit ($23,000 in 2024).
9. If your 401k plan allows, contribute to a Mega Backdoor Roth. https://thecollegeinvestor.com/17561/understanding-the-mega-backdoor-roth-ira
10. Open a taxable brokerage account and begin investing here, and/or real estate, and/or side business.
11. Limit the amount of vehicle debt you carry, as vehicles can be one of the biggest barriers to building wealth as people believe they derive "happiness" from getting new vehicles often.

Invest all of these in a low fee Total Market index fund (if offered) or an S&P500 index fund, to start.  
DONT TOUCH it.  Just be steady and don't change, be careful who you listen to, and don't make emotion-based moves into cash because what you just "know", likely is not so.


Recommended reading:

https://www.amazon.com/Simple-Path-Wealth-financial-independence/dp/1533667926

https://www.amazon.com/dp/1119847672?tag=arfcom00-20

https://www.amazon.com/Richest-Man-Babylon-Original-Classics/dp/B0C1J5ML66

https://www.amazon.com/The-Millionaire-Next-Door-audiobook/dp/B0000547HR

I’ll take a look at all those books. I already have the one by JL Collins and I’m already working on some of those steps. Not sure if I’ll ever have enough annual income for some of those backdoor and mega backdoor IRAs, but even with a stacked 401k and Roth IRA I think I’ll be fine if I stick with my current plan.

You will be surprised.  With dual incomes, you will get there sooner than you can believe.  And with dual incomes, it is even more likely you can take advantage of maxing out something like a mega backdoor Roth, while living off one person's income.

We have been single income only for the past 10 years.  But back when my wife worked, it was amazing to allocate 100% of one person's paycheck tax advantaged retirement accounts, or debt knockout.  

My wife just went back to work this week part time, after 10 years raising our kiddos.  It isn't much, but I am absolutely looking forward to the income.

I think our hope is to be solely single income once I graduate, but I will say the current economy isn't very friendly for that line of thinking right now. Here's to hoping my summer internship results in a well paying job offer out of college!