Our son signed up for his company 401k plan as quickly as he could after starting work last month. The company has a good match, but he wants to make sure he is saving as much as he can to really put himself ahead in the future.
He wondered how much more he needed to save – beyond the 401k to really be on track to reaching FIRE. Typically, 401k matches top out between 3-6%. That’s clearly not enough. The typical ‘rule of thumb’ is that you should save 15% of your pay for retirement., although most people don’t save even half of that amount.
With the goal of seeing how much one would need to save to reach FIRE by 50, he used this online calculator from Nerd Wallet, to play with the numbers a bit. What he found was close to my estimate- that you need to save about 30% of your pay. That’s a big number to target, but being that he’s just out of college and still has minimal expenses, it’s a target he can reasonably attempt.
The obvious benefit of saving at a high rate early in your career is that you don’t have to play catch-up later. Hopefully, he can avoid the needless ‘lifestyle’ creep that many young people fall victim to when they start their careers. If he can get used to a high savings rate now, he will be way ahead of most people that haven’t even started to think about such things. We shared with him that we certainly weren’t that forward-thinking when we were his age.
How young were you when you put your savings rate in high gear?
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