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3 Reasons to Save More Than 15%

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3 reasons to save more than 15%How much do you need to save to have a comfortable retirement? The consensus from the financial industry is you should save 10-15% of your pre-tax income for retirement. Personally, I think this saving rate is too low and this advice is doing a disservice to young people. A new graduate who is starting a full time job will look at this recommendation and try to save 15%. Once it becomes a habit, it is extremely difficult to increase your saving rate unless you make a huge effort to change. Okay, saving 15% will probably be enough to fund a comfortable retirement, but is that all you want? Do you really want to work for 40 years and then retire when you turn 65? Saving more will give you some great options when you’re older. It’s unfortunate that most young people don’t know about the reward of saving more than 15% of their income.

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When I started my first professional job in 1996, my dad encouraged me to sign up for the 401K plan. At 22, I didn’t care about retirement and I wanted to put any extra money in a saving account. This is a terrible way to save because the money is too easy to access and the gain would be very low.  Luckily, my dad kept at it and was able to convince me to save for retirement. I started off slow, but increased my contribution to the maximum in just a few years. Consistently maxing out my 401k has been the best financial decision I’ve ever made. That account is the biggest part of our net worth and I owe it to my dad. Unfortunately, I didn’t keep careful track of my finance in those early years so I’m not exactly sure what my saving rate was. It was probably around 25% of my income for most of my 20s.

Anyway, I think 25% is a much better target to shoot for. When you’re just starting out, you have a pretty simple lifestyle. You’re used to living like a poor student and you don’t need a lot of money to be happy. I lived a much nicer lifestyle than when I did in college even with saving 25%. That’s the first reason to save more than 15%.

1. Control lifestyle inflation

Lifestyle inflation gets a lot of people in financial trouble. Saving a bigger percentage of your income from the start will help you control lifestyle inflation. The more you save, the less money you will spend. That’s why it’s the 401k is a great way to save. The contribution is automatically deducted from your paychecks and the money isn’t very accessible. The money just doesn’t feel the same in a saving account. When money is easily accessible, you will probably use it.

Of course, some lifestyle inflation is inevitable. We can’t live like a starving student forever. Well, some of us can, but most of us want to live more comfortably especially as we make more income. I feel that saving 25% or more is a good compromise. If you’re making good income in a white collar job, then 25% shouldn’t be a big problem. Actually, our saving rate kept growing as we increased our income. When I realized I wanted to retire early, I was able to push it into overdrive and saved about 75% of our income during my last 2 years of full-time work. I was saving all of my W2 income and we lived on our other income during this early retirement trial run. This acclimate us our current lifestyle and my early retirement has been relatively smooth.

2. Become wealthy

You will never become wealthy if you save just 15% of your income. You will have enough to fund your retirement, but probably not much more. Of course, the definition of wealth is different for everyone. For me, it means living a comfortable lifestyle and having a little left over to pass on to my kid. Also, I think $3 million net worth is wealthy enough.

Can you become a millionaire by saving 15%? Theoretically, it is possible. Dave Ramsey said you just need to save $35 per week to become a millionaire in 40 years. Of course, in 40 years, a million bucks won’t be worth much.

Saving a bigger percentage of your income is the ticket to wealth for the regular white-collar worker like I used to be. If you can save 25% of your income at the start and then increase it to 50%, you will be a millionaire in much less than 40 years. I estimate 15 to 20 years.

3. More options

Saving more will give you a lot of options when you get older. You may love your job now, but it might not stay that way forever. Saving a bigger percentage of your income will enable you to reach financial independence earlier and you will have a lot more options then. You can continue to work in the same job, but be pickier about your assignments. You could change job or career to something you like better. You could even retire early and become a stay at home dad/blogger like me. The possibilities are endless when you are financially secure.

If I knew about financial independence when I was 22, I’d probably ramped up my saving rate earlier. Those early years make a huge difference due to compound interest. Working for a corporation was fun for a few years, but life is so much better now after more than 3 years of early retirement. Early retirement really agrees with me.

Save more than 15%

Lastly, saving more doesn’t necessarily mean living more frugally. A better option would be to increase your income and keeping your lifestyle the same. We are still saving more than $50,000 per year even after I retired. That’s around 50% of all our income. We have many sources of income now and our investments are paying off. Once Mrs. RB40 retires, then our saving rate will probably drop to near 0%.

My recommendation would be to start saving 25% and try to increase it to 50%. This shouldn’t be too difficult if you just graduated from college and are starting a new job. Your lifestyle will still be much better than when you were a student. It’s much tougher to cut back if you’re already accustom to living a certain lifestyle.

Can you think of other reasons to save more than 15%?

What percentage of your income (all sources) do you save?

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{ 62 comments… add one }

  • Dr. J @ MedSchool Financial March 30, 2016, 4:55 am

    The ability to control lifestyle inflation is key, its surprising how much we really need to enjoy a quality life, its often not much but our society gets in the habit of where our expenses always catch up to our take home. Part of my plan is to continue living like a student for the next few years, you have already conditioned for it, so might as well, and it will serve you well for the foreseeable future.

    • retirebyforty March 30, 2016, 10:55 am

      It’s unfortunate that most new grads don’t think like that. As soon as they see a big paycheck, they go out and spend it. Keeping lifestyle under control is essential and it’s easiest when you first finish college.

      • Tom April 7, 2016, 3:36 pm

        I disagree. I’ve been in the workforce 5 years in May since graduation and I do not see that many my age spending everything we make. You have to remember, we were in college during the financial crisis of 2008. We know how easily everything can be wiped out. Shelter, food, good health, and internet are about all we need to thrive.

        • retirebyforty April 8, 2016, 7:37 am

          That’s great! Good job. You need to keep it up. Life will get more complicated soon. Good luck!

  • Jim @ Route To Retire March 30, 2016, 5:32 am

    This is definitely a lifestyle change for some people. We live pretty modestly and save at least 30% of our income pretty easily. Others though always want the latest doo-dads and that just makes it harder to save.

    My brother’s a good example – between him and his wife they make excellent money… but they don’t save anything really except for their 401(k)s. They don’t have any kids and don’t want to ever stop working so it’s not horrible, but they’ll really be up a creek should an emergency arise.

    — Jim

    • retirebyforty March 30, 2016, 10:57 am

      Yes, most people has a similar mindset to your brother. At least he is saving in his 401k. The problem is people evolve. He might be happy now, but who knows what he will feel like in 10 years. It’s good to have more options.

  • Christine @ The (mostly) Simple Life March 30, 2016, 5:32 am

    My goal for this year is to save $1000 for retirement. We’re focused on getting my husband through school without any debt. We have a little saved in a 401k from previous jobs as well. Once he’s done with his degree in the fall we need to step up the saving big time! But we should have a decent income increase to help that become possible!

    • retirebyforty March 30, 2016, 10:58 am

      Good luck! You’re set for a big jump in saving once your husband graduate and get a new job. Don’t let your lifestyle inflate too much when he makes more money. 🙂

  • Larry Green March 30, 2016, 5:38 am

    25% is a good starting point for people. I try to remind my friends who have graduated in the past few years that at the age right out of school, you are used to living on Mac N’ Cheese and Ramen Noodles. Not that I recommend continuing to eat those forever, but resisting the urge to splurge on craft beers and concerts is going to be easier before having gotten used to that lifestyle. Thanks for the great reminder that we have to do more than the recommended 15% if we want to retire early.

    • retirebyforty March 30, 2016, 11:00 am

      Right! They should be able to drink craft beers and go to concerts and still save 25%. I think it’s the big purchases like a new BMW or a big wedding that can throw a wrench in your saving rate.

      • Mike March 30, 2016, 2:11 pm

        Exactly. I get not spending on big houses, cars, trip etc. But, quitting craft beers is where I draw the line!

        I’ve saved about 35% on average since I started working full-time after grad school in 1990. Pulling the plug on FI next April at 51.

        Cheers.

        • retirebyforty March 31, 2016, 8:12 am

          Actually, I just quit buying beer recently. It’s mostly for health reason, though. My triglyceride level is too high and alcohol won’t help.

  • Arrgo March 30, 2016, 5:59 am

    15% is a good start but doing a higher percentage especially when you are younger is the way to go. I opened an IRA in my mid 20’s then a 401k starting at 28. (I’m 47 now) I always maxed the IRA and put at least 15% in the 401k. I didnt really run the numbers back then or have a specific plan. It just “seemed like a good thing to do”. I wish we had FIRE blogs back then or someone would have sat down with me for 5 minutes and planted the seed explaining FIRE. There have certainly been times over the years where I had extra money that could have been invested and put to better use had I known better. My mindset used to be that I would just work till 65 cause that was the thing to do, but over the last 6 years or so I have been also maxing out the 401k and with the stock market rally my accounts have really grown. I can actually retire now if I wanted to. My advice is to just put your IRA, HSA, and 401k contributions on automatic and just focus on your career and living your life. After 10 or 20 years you’ll probably be surprised how much your accounts have grown.

    • retirebyforty March 30, 2016, 11:02 am

      That’s exactly how I feel. I would have saved more if I knew about the alternative. I didn’t save for early retirement, just financial security. We struggled financially when I was young so I had an incentive to save a good chunk of my income. 25% was a good start and it worked out well. Yeap, automatic investing is the way to go.

  • SavvyFinancialLatina March 30, 2016, 6:39 am

    I have established an automatic savings plan. Every month money is auto deducted and put into savings buckets. It has really helped.

  • Gwen March 30, 2016, 7:00 am

    I encourage all of my friends starting their first big kid job to at least contribute enough to get a match. If they’re relatively debt free, I encourage them to save more, and if they have significant student loan debt I help them come up with a plan to pay it back faster. They’re always amazed when they realize how easy it really is.

    • retirebyforty March 30, 2016, 11:03 am

      Great job! I suggest encouraging your friends to max out their 401k as soon as possible. If they don’t have debt, it should not be that difficult to do. Contributing enough to get matching is a good start, but it’s not enough.

  • Mike Drak March 30, 2016, 7:05 am

    I love your line “living like a student and you don’t need a lot of money to be happy”. Can we ever go back to living that way? How can we capture that magic again? Life was so simple back then.

    • retirebyforty March 30, 2016, 11:05 am

      It’s unfortunate, but you can’t go back. Life always seems nicer in hindsight. 🙂 I think the magic is mostly due to youth. Life is good when you’re young and have your whole life ahead of you.

  • Dividend Growth Investor March 30, 2016, 7:20 am

    That’s a great article. You have done the smart thing to consistently save a lot, keep expenses in check, and investing for your family’s future. This has given you options in life, such as the ability to call it quits at the age of 38..

    You can control your savings rate, and your expenses better than return on investments. The ability to consistently save more than 60% of your income in the accumulation phase, is more important than the ability to generate annual returns like Warren Buffett. Of course, if you generate good returns on top of that high savings rate, you are golden.

    • retirebyforty March 30, 2016, 11:07 am

      Thanks! I think the saving rate is much more important than the return rate when you’re young. You can save much more than your investment can produce. It’s important to keep plowing the profit back into your saving as well. This is how to grow your saving rate.

  • Charlie March 30, 2016, 7:21 am

    Exactly, saving 15% won’t take you to early retirement. Seems like most votes from the readers are in the 20-60% range which is great to know. Right now I’m saving slightly over 20% but I’m aiming for a higher number this year. You are lucky you have someone tell you the importance contributing to 401k at age 22. I didn’t know about it until 31, and I had to find out all on my own. But I’m glad I finally found out!

    • retirebyforty March 30, 2016, 11:08 am

      Yes, I feel very fortunate. Good luck to you as well. Keep growing your saving rate and you’ll be in a great financial position before you know it.

  • Eric Bowlin March 30, 2016, 7:40 am

    I Really like #1. I never thought of calling it “Lifestyle Inflation” but that’s exactly what it is. As you earn more, you tend to spend more! If you are satisfied with your living standard before a raise, then take most of that raise and save it instead of spending it.

    So, If I save 15% now and get a 3% raise, don’t save just 15% of that raise, save 50% of it! Now your savings rate is closer to 16.5%. You can keep doing that until you are saving a lot each month.

    • retirebyforty March 30, 2016, 11:10 am

      That’s a great way to do it. Splitting your raise is one way to grow your saving rate. I still think 15% is too low as a starting point. It would take you many years to grow to 25%.

  • The financial tech March 30, 2016, 7:57 am

    Great article ! I’m currently saving 15% of my salary but I am also investing in my side business to make it growth and make more profit.

    I am looking to saving arround 20 to 25% later this year. I don’t have a plan on when I will retire but I will love to have this option fast so I don’t stress on the job for nothing and can have the option to quit if I don’t like it anymore.

    • retirebyforty March 30, 2016, 11:10 am

      Good luck. I consider investing in a side business a form of saving too. Keep at it.

  • Adam and Jane March 30, 2016, 8:16 am

    RB40,

    For the last 5 years, we saved 85% of our income. We are both in IT and we know we are very fortunate. DINKs and mortgage paid over 10 years ago.

    Our #1 reason to save as much as possible is financial security. With so many companies in America outsourcing, 6 years ago we cut our expenses to bare essentials. We stopped buying dust collectors for the house, replaced cell phones with “tracfones” at $100 a year, stopped buying magazines, books, CDs, DVDs, junk, etc. Although, both of us hate our jobs we will stick it out for another 3-4 years to reach 55 so that we can double our pensions and to receive medical coverage too. Our company is currently outsourcing and we are kept for now until we are no longer needed. We would luv a package.

    We have tax free passive income from munis to cover 133% of our current expenses plus 20k for medical in case we lose our jobs before 55. We currently have a pension to coverage 66% of our expenses at 55. If we reach 55 then our pension would cover 145% of our expenses. At 59.5, fixed interest from our 401K will cover 100% of expenses. We want a min income 3x of expenses so that if 1-2 source of income are lost, we would still be OK.

    We can leave the company anytime but we will try to work until 55 to double our pension and to get 7-9K each for medical. If we leave before 55 then we will have to pay 20K out pocket for medical for the next 14 years until we reach 65 for Medicare.

    Since we reached FI two years ago, we just don’t care what happens in the company anymore. At this point, we are just counting down. It is sad to see that many of my co-workers are in panic mode.

    Having financial security and good health is priceless!

    Adam

    • retirebyforty March 30, 2016, 11:15 am

      Oh wow. Thank you for sharing! Saving 85% of your income is a fantastic accomplishment. That will fast track anyone to financial independence. It’s amazing how FI can lower your stress level. You’re the perfect example. You still go to work, but you are a lot more happy now that you know you can leave anytime. Good luck for reaching 55. You’re already in a great position.

  • nicoleandmaggie March 30, 2016, 8:33 am

    Since we were in graduate school for so long, we had to up our retirement savings to make up for lost time! And currently it’s a matter of stashing away as much as possible in advantaged accounts for tax savings and to increase the chances of getting college financial aid for our kids.

    • retirebyforty March 30, 2016, 11:17 am

      Oh yeah, financial aid… Stashing away your wealth in the tax advantaged account is a great way to lower your expected parental contribution for FASA. We will have to keep that in mind when we start withdrawal.

  • Dividend Reaper March 30, 2016, 9:30 am

    RB40,

    Saving a ton is certainly very possible and not very hard if you keep to a budget. The problem lies in the way our society runs. It supports a people that are trained from a very young age to be consumers. This makes it that much harder for those who are used to this lifestyle to think of even saving a dollar. I’m constantly surrounded at work by people that are even 15 years older than me that have barely put away a few dollars in their 401k. When asked what they plan to do, they seem to think it will just “work out”. Eish, the whole thing just makes my head boil.

    -Dividend Reaper

    • retirebyforty March 30, 2016, 11:19 am

      I guess it’s good for us that most people are consumers. It keeps the economy humming. If everyone save 50%, then the US economy probably would slow way down. Not sure if this is true, though. I’m just guessing.

  • AC March 30, 2016, 10:24 am

    RB40,

    You mention socking away approximately 25% throughout your 20s. It sounded like you were able to do this in your company 401K. Perhaps I’m mistaken.

    I have only been allowed to contribute up to 16% max per annum.

    Thanks for the article!

    • retirebyforty March 30, 2016, 11:21 am

      Yes, primarily through 401k. I maxed out every year and I think that pushed my saving rate to around 20% in the early years. I saved more in my taxable brokerage account and Roth IRA.
      You must be making a very big paycheck if you can only save 16%. The 401k contribution limit is $18,000 for 2016. I would save more in Roth IRA as well.

  • Allan L. March 30, 2016, 11:00 am

    I am currently saving at least 45% of my pay. We live on one and have been fortunate to save that much although I’d like to save more. But, that’ll do it for now. I don’t want to save so much money that I am practically becoming unreasonable.

    Inflation is something that we cannot control ever. But what we can control is how much we save and spend. The more you save, the less money you spend in the process. The less money you spend, the more you appreciate what you have and don’t have. That’s how I see it.

  • Revanche March 30, 2016, 12:36 pm

    We save 25% cash, plus max out our retirement accounts, and a little extra on the side for LB’s savings, so I think we’re probably looking at around 30% gross in total. It’s not bad but I’m looking for ways we can do better!

    • retirebyforty March 31, 2016, 8:08 am

      30% is a lot better than average. Great job!

  • Tawcan March 30, 2016, 1:24 pm

    When I was single in my 20’s I think I was socking away like 70% or more without really even trying. That number has reduced a bit since I got married but we’re still socking away more than 15%. 🙂

    • retirebyforty March 31, 2016, 8:10 am

      Oh wow, that’s really great. It’s hard to save such a big percentage in your 20s because most people don’t make much at that age. I made more money as I got promoted, but then the expenses increased too. We got a house, etc…

  • Nathan @ Investment Hunting March 30, 2016, 2:07 pm

    I have to agree that 15% is too low. I saves around 40% per year over the past two years. I need to do this because I got started late to this game. But if I could go back 25-years, I’d invest 40% to 60% in my youth and let the power of compounding push me to the finish line.

    • retirebyforty March 31, 2016, 8:11 am

      40% is very good. Yes, it’s too bad we don’t realize the power of compounding until we’re usually a little older. I will make sure to teach my kid this concept early so he can take advantage of it.

  • Getting To One Million March 30, 2016, 3:06 pm

    I make $71,000 gross and live on half of that. I always max out my 401k and IRA and also save all extra income after maxing out. I also save my tax refund. I live in Los Angeles and still can do it. Please see my blog where I list my networth, ways I save, and my budget.

  • Stockbeard March 30, 2016, 6:08 pm

    You touched an interesting point that resonates with me: would I have been better off if I had learned about early retirement when I was 22?
    On the one hand, I would have saved much more for a longer time, and would probably have been able to retire that much earlier.
    On the other hand, learning that early retirement was a possibility only very recently, I have been blessed with the gift of ignorance: I only had a handful of years to work before reaching financial independence. Seeing how grueling work has become to me now that I realize there is another way, I feel that it’s actually good I didn’t know about FI much earlier, the long path would have killed me 🙂

    • retirebyforty March 31, 2016, 8:15 am

      You made a good point. We saved for financial security when we were in our 20s. If we were shooting for FI, it would have been a very long road. Probably 10-15 years. That would have made work more difficult. I’m pretty happy how it worked out. The last few years at work were very grueling, though. I wouldn’t want to go through that again.

  • Sandy March 30, 2016, 6:33 pm

    I am 53 and my husband is 56. We didn’t start saving for retirement until we were in our mid-thirties and then we started the 10-15% approach, by 40 we realized this approach was not going to get us there. So we started saving 35-50% of our combined income and aggressively paying down our mortgage. Late last year my husband found himself out of work, but our house is paid off and we have managed to save a very good sum of money in the last 15 years. Major reorg where I work now, not sure I’ll make it through, but I think we will be okay even if I don’t. I am also lucky enough to have a small defined benefit pension that I can collect at 57, hoping I can make it at least that far down the road, but we’ll see. The point I want to make is that those who assume that they will have good employment option up to or even after age 65 are taking a big gamble. We have been planning to retire by 60 for 15+ years and in the end this decision may be made for us, I’m grateful that we have prepared for it.

    • retirebyforty March 31, 2016, 8:17 am

      Thank you for sharing. It sounds like you are doing very well with the ramp up saving rate. You’re right. It’s easy to assume work will always be there when you’re young. That’s not always the case. Work is a lot less fun as I got older. Good luck!

  • Andrew Daniels March 30, 2016, 9:01 pm

    We are aiming to start saving at least 50% by the end of the year. At that point we want to kick our financial freedom plan into high gear. I’m hoping we can do it sooner but there is still some debt that needs to go. For us the reason to save is the choices that come from being financially independent. It’s exciting to be getting near that point.

  • Tara Cta March 31, 2016, 4:00 am

    My husband and I just turned 30. He is in his fourth year of a PhD program and we live in New York with high expenses, but I make a decent income and we manage to save 30% I THINK. And the reason I say I think is because I don’t know if you are calculating that percentage based on gross income or net income? Should I calculate my percentage of savings based on our pre-tax income or on our after tax income? Thank you!

    I started closely tracking our expenses at the start of 2014 right after we got married and it is so helpful.

    • retirebyforty March 31, 2016, 8:19 am

      The saving rate is usually calculated with pre-tax income. Great job with your saving rate especially in a high cost of living area like NY. It sounds so expensive there.

  • Mike H. March 31, 2016, 7:10 am

    I’m going to take the contrarian view here. It really depends on your goals: if you want to reach financial independence, 15% is too low, but a good starting point. But that’s not everyone’s goal. And don’t forget that a lot of people here can afford to save more than 15%; that’s not true of quite a few Americans. You need a certain level of income to live – it makes no sense to save for a luxurious and early retirement if it means starving today.

    To fund a secure retirement after a full 30-to-40-year career, 15% is enough…ish, and that’s if you start in your early 20s. I’ve read reports that say 18% is a better target and improves outcomes significantly, and I believe it.

    As a retirement professional, I am always in favor of higher savings rates. But there is such a thing as over-saving. On a macro level, it’s better to smooth consumer spending across time (i.e., for the population, we should want continuity rather than sudden luxury). On an individual level, it’s very hard to get Americans to save at all, let along save enough.

    • retirebyforty March 31, 2016, 8:21 am

      I still think it’s better to save 25% at the outset. If things go well, then you can always reduce the saving rate. It is so much easier to reduce the saving rate than increasing it. Yes, you’re right about needing a certain level of money to live. This post is aimed at the young professionals who could save 25% without a lot of sacrifice.

      • nicoleandmaggie March 31, 2016, 10:06 am

        I think our ask the grumpies question tomorrow is actually on this topic– can you save too much?

  • Jo March 31, 2016, 10:56 am

    In the first years of my career it was difficult to save more than 15% because I had to pay back my college loans plus my car loan and my rent out of my basic salary.
    After several years it was much easier to save 50% just by living out of my basic salary and allocating my annual bonuses, RSUs and share options for savings.

  • Getting To One Million March 31, 2016, 4:45 pm

    I make $71,000 before taxes and live on half of that. I always max out my 401k and IRA and also save all extra income after maxing out. I also save my tax refund. I live in Los Angeles and still can do it. Please see my blog where I list my networth, ways I save, and my budget.

  • Mr. Tako @ Mr. Tako Escapes March 31, 2016, 5:53 pm

    My goal (which I generally have exceeded) was to spend 50% and save 50%. I’ve done this since my early days out of college. It’s worked out OK, and retiring at 38 isn’t too shabby!

    Not as early as some, but I still have 50% of my lifespan left (based on average life expectancy).

    • retirebyforty April 1, 2016, 10:27 am

      50% is really great and you have maintained it for a long period. Not many people can do that. Good luck with the lifespan. I’m keeping my fingers crossed too.

  • Smart Money MD April 1, 2016, 6:23 pm

    Impressive. I’ve wondered how the extreme folks like ERE managed to save a disturbingly high amount of his income, like 85%. I’d imagine that for instance white collar workers earning roughly a $100k annual income end up paying around maybe 20% average federal tax rate and maybe another 5% state/local taxes. That means a tax-home of perhaps $75,000. I’d venture to guess that an average moderately cost conscious family of 4 would spend $50,000 a year. That’s about a 25% savings rate. Obviously there is more room to wiggle depending on how you can work your deductions, but it does take quite a bit of conscious effort to crank up your savings rate to something beyond 50%.

  • Stephen April 6, 2016, 4:14 am

    Great article! Are you sure they you are not Sam from Financial Samurai? Your sentence structure,syntax, cash flow and passive income ideas are similar. Just a thought!

    • retirebyforty April 6, 2016, 10:17 am

      I wish I was Sam. He is a much better writer than I am. 🙂

  • 747fan April 7, 2016, 1:51 pm

    I am not sure what a federal government employee like myself can do about early retirement if we cannot touch TSP till 59 1/2 year old unless we are willing to pay 10% withdrawal fee. Funnel leftover money toward brokerage account / Roth IRA?

    In addition, do you have articles on how much individuals should park their money in savings account? Opinions vary between 3-6-12 months worth of current monthly income.

    • retirebyforty April 8, 2016, 7:35 am

      I believe the TSP is very similar to the 401k. You can withdraw from the account if you retire at 55 or older. Another option is to roll it into an IRA and then build a Roth IRA ladder. This will be tough because you need to fund retirement for 5 years before you can avoid the 10% penalty.
      http://retireby40.org/4-ways-to-avoid-early-withdrawal-penalty/
      I think 3 months is plenty if your income is stable.

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