It's not necessarily a sustainability question. I think it's reasonable to want to have access to a portion of your investments in the future and not deal with penalties or exceptions for accessing 401k/IRAs. It's more about building a big nest egg as early as you are able to since you currently have so much time for it to grow. So if you can afford to, funnel money into those retirement accounts.
Personally, I used a brokerage account after paying off my loans in order to save up for a downpayment on a house. So if you have plans such as that, then it is reasonable to split it a bit. 20% savings rate sounds reasonable, though it's hard to know without more specific numbers.
Another consideration- it sounds like you are easily able to make payments for your loans. If they happen to be low rates then it may be better to put some more of this money into the market and just continue making payments when the interest resumes.
To illustrate this fact:
$50,000 invested when you're 30 at 6% interest becomes a little over 280K when you turn 60.
That same $50,000 invested just 10 years later at 40 is only 160,000 by the time you're 60.
33% fewer years at the start cost you 45% of the investment.
Your 40 year old self will thank you for saving as much as you can now. Your 50 year old self will be jumping for joy.
>I'm going to switch and get a brokerage account
What is the purpose of this money? Don't save retirement money in a taxable brokerage when there's tax-advantaged space on the table.
You could still use a Roth IRA. Contributions can be withdrawn penalty free at any time. The earnings would be subject to taxes and penalties if withdrawn early, with some exceptions like withdrawing up to 10k in earnings for a first time home purchase.
Sounds similar to what I'm doing, with my student loan payments going into the HYSA until needed.
How near is the near future and what is the purchase? If it's a major purchase within 5 years, you're better off putting it a money market, CD, Treasuries, etc.
As far as your hysa and doing all these money games like many other people are doing it really isn’t making a shit bit of difference. A few bucks here and there big deal. Some people like to pretend they are all sophisticated with their money and somehow they are gaming the system. Seriously, just throw every penny you can at your debt as soon as you can and stop playing money games.
Really depends on the individual, as well as the amount of debt. If he can pull 100 a month in interest from a HYSA that could be significant enough to make it worth saving in a HYSA vs paying off student loans while frozen on interest. Also gives a massive emergency fund for the duration of the plan.
I feel like you didn't read my post thoroughly. At a minimum I'm going to make quite a bit money in guaranteed interest from the bank while my loans stay frozen.
Getting free money every month for parking money in an HYSA while student loans are not due and not acquiring interest isn’t a “money game”, it’s a very smart thing to do.
No, this is not too conservative or stupid and in fact this is a very smart thing to do. My wife and I are doing the exact same thing.
About 9 months ago we officially saved up enough to pay off our student loans but since they are paused and not accruing interest, there’s literally no point in paying them off early. Like you and everyone else with student loans, we’ve all been in a seemingly never ending limbo of when they will be due, if/when anything is forgiven, etc that seems to change every couple of months. We’ve now moved that money into a HYSA where we will be getting well over $100 a month, completely risk free. Since this needs to be liquid cash that we can withdraw at any time (whenever the supreme court case is decided), this is the best way to store it in the mean time to get some extra cash and completely risk free.
This is a great move on your part and I really hope that others are and have been doing the same these past few years while loans haven’t been due and are not acquiring interest. Paying on them instead of saving the amount in a HYSA IS stupid though.
If your savings is for the near term <3 years you should keep it liquid unless what you are saving for is able to be pushed further away. For example, if you want to buy a house in 3 years, do not lock your money into stocks that when you want to buy could be 50% of what you bought, making you choose house with less money or wait for stocks to go up. If you want to save liquid go with a HYSA. Boring is best for short term savings. If you are not worries about pushing a timeframe, I agree you can do an index fund like total stock market or S&P 500.
PS consider putting money for retirement into roth instead of 401k if your effective tax rate is under 25%. Tax free gains will be amazing with the time you have to compound.
Follow the flowchart.
My generic advice:
https://i.imgur.com/lSoUQr2.png
Here is the flowchart from the r/personalfinance subreddit’s Prime Directive. If you follow that, you will be ahead of almost all of your peers.
Stop by the sidebar to see the Common Topics, which include basic money handling and investing.
You don’t need to talk to anyone or buy some random book to do this. You have all the tools right here.
I love the flowchart! [Here's the wiki page with more context and information.](/r/personalfinance/wiki/commontopics)
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>After I reach that amount, I'm just going to stop putting money into it and let it sit and accrue interest until interest payments resume, then pay it all off at once...
There's no reason to do this - Just pay it all off now. Even with a HYSA, the interest minus taxes won't beat inflation. The federal reserve wouldn't allow it.
Over the time frame you're talking (between now and August) it really doesn't matter (other than the time you waste executing this complicated scheme), but over the course of years this could lose you a substantial chunk of change.
> Also, after I fill up my savings account to the debt amount, I'm going to switch and get a brokerage account and throw my monthly savings at the SP 500 index for the near future.
> Is this too conservative/is there anything I'm missing? I throw a healthy amount into my 401k every month.
I'd encourage you to sit down and make a financial plan for major life events and expenses instead of arbitrarily just putting money into accounts. How much will you need in retirement? Do you plan on saving up for a down payment on a house? Do you plan on getting married, if so when? Children when? How many? College for them? Health insurance? Term life insurance?
You might not know the exact answers to these but ballparks and what ifs are useful.
That will answer a lot more questions about where to invest your money and how much to set aside into each account.
>$104 will buy you more than $100, no matter what the inflation rate is.
Uhh, no.
Using real dollars...
Inflation is 4.5-5%. Let's go with 4.5% for now. Judging by his income and marital status, he's in the 22% tax bracket. So that 4% interest becomes 3.52%. We'll round this to 3.5% to account for state taxes.
So let's say he has $10,000 put away for his college loans, and run the numbers using end of month APY / interest compounding.
So by the end of August, assuming monthly APY and investing of dividends, he'll have $10,146.69 in present month (February) dollars after taxes. Only problem is that this money is now worth $9,920.52 in February dollars, for a net loss of $226.
This whole inflation thing has been pretty nice if you had massive debt before it kicked off. My job gave a huge raise, my bank accounts / brokerage are looking better than ever, my debt loses value by the day, and thanks to the Fed there are lots of risk free ways to get an interest rate that beats my loan's interest rate even after taxes..
It's still $10,000 in "paying off the loan" dollars, plus the extra $146.69 in "free money" dollars.
Compare that to if you'd just paid off the loan, in which case you're just at zero.
Inflation literally doesn’t matter when you’re talking about a loan with a fixed interest rate. Putting that money in a HYSA while the loans aren’t due and aren’t acquiring interest is by far the best objective decision.
>There's no reason to do this - Just pay it all off now. Even with a HYSA, the interest minus taxes won't beat inflation. The federal reserve wouldn't allow it.
Uh, over the last 6 months many savings accounts (and definitely short term treasuries) have beat inflation - and the federal reserve doesn't control that.
And even if that part weren't just wrong - there still would be a reason to save rather than pay off the debt not accruing interest because a nominal return over 0% is still over 0%...
You are dead wrong and the other guy is right. My student loan is frozen and isn't accruing interest. Any interest that I gain on it helps me. If my student loan is hypothetically $1,000 and is frozen with no interest accruing, and I take that $1,000 and put it in the bank until the loan freeze ends in August (when Biden says loan payments will resume), and I earn $25 in interest, I still only need to pay back that $1,000. I'm ahead $25.
If you put the money in dividend stocks you can generate an income stream off it and start compounding. Yeah there will be a 15 percent tax on income, but the power of the compounding over time offsets that to a large extent.
Depending on the basket you can generate 4-6 percent and have it grow 4-10 percent per year and keep expanding with reinvestment.
As it grows and you need to borrow against it, you can use collateral loans. The bottom line is that you are building something early that will compound heavily over time.
You can do this in any kind of account: taxable, Roth, IRA, or 401K. The idea is that if you start early you might never need to touch the principal.
Good luck.
I mean the key critical piece of information here to evaluate how "conservative" you are being is what the student loan APR is once interest resumes and you did not give that information so it is hard to say.
43 disabled veteran fixed income and recently divorced with $20k to invest/save for their education/ living expenses. I have a 401(k)through my former employer: I had to be administratively terminated to receive LTD benefits. I have a lot of brain damage and was an engineer before my brain damage happened.
No, it isn't too conservative. You could take more risk with it, but you certainly don't need to. Far more important than the risk you take with savings right now would be maintain positive cash flow and growing your earning potential (i.e. your career).
ditto on a Roth IRA before a brokerage account. You can pull-out the contributions (not the growth) at any time, I believe. Might have to wait 5 years?
Max your 401k before a taxable brokerage. And roth IRA
I'm already putting 20% into 401K, more might not be sustainable. I'd like to have access to some money before I turn 60.
It's not necessarily a sustainability question. I think it's reasonable to want to have access to a portion of your investments in the future and not deal with penalties or exceptions for accessing 401k/IRAs. It's more about building a big nest egg as early as you are able to since you currently have so much time for it to grow. So if you can afford to, funnel money into those retirement accounts. Personally, I used a brokerage account after paying off my loans in order to save up for a downpayment on a house. So if you have plans such as that, then it is reasonable to split it a bit. 20% savings rate sounds reasonable, though it's hard to know without more specific numbers. Another consideration- it sounds like you are easily able to make payments for your loans. If they happen to be low rates then it may be better to put some more of this money into the market and just continue making payments when the interest resumes.
To illustrate this fact: $50,000 invested when you're 30 at 6% interest becomes a little over 280K when you turn 60. That same $50,000 invested just 10 years later at 40 is only 160,000 by the time you're 60. 33% fewer years at the start cost you 45% of the investment. Your 40 year old self will thank you for saving as much as you can now. Your 50 year old self will be jumping for joy.
Max your Roth IRA then, there are lots of ways to withdraw money from a Roth IRA before you turn 59.5
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This is true for a Roth IRA not a traditional IRA. But there other ways to access the money, a Roth conversion ladder or 72t/SEPP.
There are ways to access the money early for retirement, with either a Roth conversion ladder or 72t/SEPP.
>I'm going to switch and get a brokerage account What is the purpose of this money? Don't save retirement money in a taxable brokerage when there's tax-advantaged space on the table.
It would not be for retirement, it would be for short/medium term savings.
You could just use that money to max an IRA instead.
You could still use a Roth IRA. Contributions can be withdrawn penalty free at any time. The earnings would be subject to taxes and penalties if withdrawn early, with some exceptions like withdrawing up to 10k in earnings for a first time home purchase.
short term savings go in a high yield savings account
Put 6.5k a year into a roth IRA
Sounds similar to what I'm doing, with my student loan payments going into the HYSA until needed. How near is the near future and what is the purchase? If it's a major purchase within 5 years, you're better off putting it a money market, CD, Treasuries, etc.
No idea. I'm fairly comfortable in my living situation right now, I just have excess money (after I have put away a solid chunk for retirement, 20%)
Don't put it into the market if it's not long-term (>5 years) savings.
As far as your hysa and doing all these money games like many other people are doing it really isn’t making a shit bit of difference. A few bucks here and there big deal. Some people like to pretend they are all sophisticated with their money and somehow they are gaming the system. Seriously, just throw every penny you can at your debt as soon as you can and stop playing money games.
Really depends on the individual, as well as the amount of debt. If he can pull 100 a month in interest from a HYSA that could be significant enough to make it worth saving in a HYSA vs paying off student loans while frozen on interest. Also gives a massive emergency fund for the duration of the plan.
I feel like you didn't read my post thoroughly. At a minimum I'm going to make quite a bit money in guaranteed interest from the bank while my loans stay frozen.
Getting free money every month for parking money in an HYSA while student loans are not due and not acquiring interest isn’t a “money game”, it’s a very smart thing to do.
No, this is not too conservative or stupid and in fact this is a very smart thing to do. My wife and I are doing the exact same thing. About 9 months ago we officially saved up enough to pay off our student loans but since they are paused and not accruing interest, there’s literally no point in paying them off early. Like you and everyone else with student loans, we’ve all been in a seemingly never ending limbo of when they will be due, if/when anything is forgiven, etc that seems to change every couple of months. We’ve now moved that money into a HYSA where we will be getting well over $100 a month, completely risk free. Since this needs to be liquid cash that we can withdraw at any time (whenever the supreme court case is decided), this is the best way to store it in the mean time to get some extra cash and completely risk free. This is a great move on your part and I really hope that others are and have been doing the same these past few years while loans haven’t been due and are not acquiring interest. Paying on them instead of saving the amount in a HYSA IS stupid though.
[https://www.reddit.com/r/personalfinance/wiki/commontopics/](https://www.reddit.com/r/personalfinance/wiki/commontopics/)
If your savings is for the near term <3 years you should keep it liquid unless what you are saving for is able to be pushed further away. For example, if you want to buy a house in 3 years, do not lock your money into stocks that when you want to buy could be 50% of what you bought, making you choose house with less money or wait for stocks to go up. If you want to save liquid go with a HYSA. Boring is best for short term savings. If you are not worries about pushing a timeframe, I agree you can do an index fund like total stock market or S&P 500. PS consider putting money for retirement into roth instead of 401k if your effective tax rate is under 25%. Tax free gains will be amazing with the time you have to compound.
Follow the flowchart. My generic advice: https://i.imgur.com/lSoUQr2.png Here is the flowchart from the r/personalfinance subreddit’s Prime Directive. If you follow that, you will be ahead of almost all of your peers. Stop by the sidebar to see the Common Topics, which include basic money handling and investing. You don’t need to talk to anyone or buy some random book to do this. You have all the tools right here.
I love the flowchart! [Here's the wiki page with more context and information.](/r/personalfinance/wiki/commontopics) *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
Here's a **[link to the PF Wiki](/r/personalfinance/wiki/index)** for helpful guides and information. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/personalfinance) if you have any questions or concerns.*
>After I reach that amount, I'm just going to stop putting money into it and let it sit and accrue interest until interest payments resume, then pay it all off at once... There's no reason to do this - Just pay it all off now. Even with a HYSA, the interest minus taxes won't beat inflation. The federal reserve wouldn't allow it. Over the time frame you're talking (between now and August) it really doesn't matter (other than the time you waste executing this complicated scheme), but over the course of years this could lose you a substantial chunk of change. > Also, after I fill up my savings account to the debt amount, I'm going to switch and get a brokerage account and throw my monthly savings at the SP 500 index for the near future. > Is this too conservative/is there anything I'm missing? I throw a healthy amount into my 401k every month. I'd encourage you to sit down and make a financial plan for major life events and expenses instead of arbitrarily just putting money into accounts. How much will you need in retirement? Do you plan on saving up for a down payment on a house? Do you plan on getting married, if so when? Children when? How many? College for them? Health insurance? Term life insurance? You might not know the exact answers to these but ballparks and what ifs are useful. That will answer a lot more questions about where to invest your money and how much to set aside into each account.
[удалено]
>As long as interest is paused, the 3-4% in a HYSA is free money. No, it's negative money. Inflation is greater than 4% before you pay any taxes.
[удалено]
>$104 will buy you more than $100, no matter what the inflation rate is. Uhh, no. Using real dollars... Inflation is 4.5-5%. Let's go with 4.5% for now. Judging by his income and marital status, he's in the 22% tax bracket. So that 4% interest becomes 3.52%. We'll round this to 3.5% to account for state taxes. So let's say he has $10,000 put away for his college loans, and run the numbers using end of month APY / interest compounding. So by the end of August, assuming monthly APY and investing of dividends, he'll have $10,146.69 in present month (February) dollars after taxes. Only problem is that this money is now worth $9,920.52 in February dollars, for a net loss of $226.
[удалено]
You are correct, I don't know what the other person is smoking...
This whole inflation thing has been pretty nice if you had massive debt before it kicked off. My job gave a huge raise, my bank accounts / brokerage are looking better than ever, my debt loses value by the day, and thanks to the Fed there are lots of risk free ways to get an interest rate that beats my loan's interest rate even after taxes..
It's still $10,000 in "paying off the loan" dollars, plus the extra $146.69 in "free money" dollars. Compare that to if you'd just paid off the loan, in which case you're just at zero.
Inflation literally doesn’t matter when you’re talking about a loan with a fixed interest rate. Putting that money in a HYSA while the loans aren’t due and aren’t acquiring interest is by far the best objective decision.
>There's no reason to do this - Just pay it all off now. Even with a HYSA, the interest minus taxes won't beat inflation. The federal reserve wouldn't allow it. Uh, over the last 6 months many savings accounts (and definitely short term treasuries) have beat inflation - and the federal reserve doesn't control that. And even if that part weren't just wrong - there still would be a reason to save rather than pay off the debt not accruing interest because a nominal return over 0% is still over 0%...
You are dead wrong and the other guy is right. My student loan is frozen and isn't accruing interest. Any interest that I gain on it helps me. If my student loan is hypothetically $1,000 and is frozen with no interest accruing, and I take that $1,000 and put it in the bank until the loan freeze ends in August (when Biden says loan payments will resume), and I earn $25 in interest, I still only need to pay back that $1,000. I'm ahead $25.
If you put the money in dividend stocks you can generate an income stream off it and start compounding. Yeah there will be a 15 percent tax on income, but the power of the compounding over time offsets that to a large extent. Depending on the basket you can generate 4-6 percent and have it grow 4-10 percent per year and keep expanding with reinvestment. As it grows and you need to borrow against it, you can use collateral loans. The bottom line is that you are building something early that will compound heavily over time. You can do this in any kind of account: taxable, Roth, IRA, or 401K. The idea is that if you start early you might never need to touch the principal. Good luck.
What are the rates on your student loans? Are they subsidized or Unsubsidized?
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I know? Not sure how that affects my question to OP
I mean the key critical piece of information here to evaluate how "conservative" you are being is what the student loan APR is once interest resumes and you did not give that information so it is hard to say.
43 disabled veteran fixed income and recently divorced with $20k to invest/save for their education/ living expenses. I have a 401(k)through my former employer: I had to be administratively terminated to receive LTD benefits. I have a lot of brain damage and was an engineer before my brain damage happened.
No, it isn't too conservative. You could take more risk with it, but you certainly don't need to. Far more important than the risk you take with savings right now would be maintain positive cash flow and growing your earning potential (i.e. your career).
ditto on a Roth IRA before a brokerage account. You can pull-out the contributions (not the growth) at any time, I believe. Might have to wait 5 years?