I’m 38, sold my house for $1.3 million and saved money but I’m ‘wondering if I’ll ever be able to retire’
Dear Marketwatch,
I’m 38 and wondering if I can retire. In 2020, I bought a $649,000 house at a 25% discount. In 2022 I sold it for $1.3 million, took that money and scaled down the cash payment. My total monthly housing costs are still $1,500 (taxes, insurance, HOA, utilities, etc.). I didn’t have a car until recently and now have a $1,000 payment over the next 5 years.
My earnings with bonus is $150,000. I have $150,000 in a Traditional IRA, $50,000 in a Roth, and $50,000 in my company’s 401(k) fund (20% Roth, 80% Traditional). I am currently contributing maximum, have a matching employer $4,000/year plus $8,000/year to the company’s 401(k) after-tax fund. I have about $1,300 per month in supplemental income. Am I saving enough? Should I buy an income-generating property and cut my retirement savings?
Help!
Dear reader,
First, compliment you in your 30s, have saved a lot of money, think deeply about your financial decisions, and really track your retirement safely. That in and of itself is a huge achievement.
You are very lucky to be in a position where you earn your current salary and have the right accounts and employers for you offered. It’s a situation that not many young Americans find themselves in, and you should absolutely make the most of it. With the country moving in the direction of phasing out private sector pensions, Social Security is in the midst of a number of changes (Congress has never let it falter, but it needs help now) ) and retirees are primarily responsible for their own retirement income, the sooner workers think about their post-retirement finances, the better. A 401(k), a suitable employer, and a good salary are key ingredients in doing so.
You ask if you’ve saved enough, but truth be told, there’s really no way to know what “enough” is right now. You’re 38, so unless you plan to retire significantly earlier than traditional retirement around age 60, you may not know what your costs will be in retirement. No one can know for sure how much housing, utilities, auto payments, healthcare, emergencies, etc. will cost in the next 20 or 30 years. You can try and calculate what you want in your annual retirement income, factor in inflation, and work backwards to find a number to strive for, but that number will likely vary many times from now comes when you are really close to retirement. .
Check out MarketWatch’s column “Retirement Tips” for actionable tips for your own retirement savings journey
That means, at this point in your retirement journey, the focus should be on saving, saving, saving as much as possible without completely depriving yourself of the present. Looks like you’re doing it.
If by income generating property you mean focusing on rental income, that’s certainly a way to bring in extra cash, but it often comes with a lot of work. There are months when you might not make any money if there is a vacancy, and then there are less than ideal times when you have to pay for repairs, replacements, etc. Rental income is a great way to make money — many people Early retirement use it as one of their main sources of retirement income —, but it’s more than that stretch rather than hoarding cash in a 401(k) or IRA. You must also find reliable and responsible tenants, as the opposite can cause headaches as a landlord.
If you go that route, plan to keep extra cash in case you need to fix something, and if you end up buying multiple properties, consider hiring a trusted manager. to help keep the day-to-day business going. Before buying real estate, make sure you have examined the “bones” of the house or building, and know detailed information about the roof, pipes, history of the property, etc.
You shouldn’t cut too much of your retirement savings to replace rental properties. Ideally, you should take a portion of that profit and deposit it in an account for the future. But I will say, you may want to diversify the types of accounts you have for the future.
Also see: Should you be a homeowner in retirement?
You mention that you have a Roth and a traditional account. That’s great, because tax diversification is a huge advantage in retirement. It gives you the ability to choose how you generate your retirement income and therefore how many tax bills you may face, and that works. But it is not the only tool. Diversifying the account types you have also helps. For example, you have a 401(k) and an IRA, but those accounts have limitations, such as account holders needing 59 and a half years to freely withdraw money from them (Roths allows investor contributions. is distributed free of charge, but there are other withdrawal rules keep in mind).
Instead of putting all your money for retirement into a retirement account, you might want to try a brokerage account. Those are taxable, but there are fewer distribution rules, and that can be helpful if you’re retiring early.
Now, keep up the good work. The fact that you’ve invested so much in your retirement security is a very good sign.
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