I am 22 and started a contracted job a couple months ago. How much should I contribute to retirement? Would just as much as I can be good?

I do not know much about anything with finances as I just graduated college and this is my first full time job so here is some of my info:

I have no debts and I live with my parents. I have about 9k saved up in my bank accounts. I make 22/hr. My company does not do any contribution since I am an outside contracted employee.

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Rave-Unicorn-Votive t1_iuf66z2 wrote on October 30, 2022 at 9:25 PM

After saving a "if my parents decide to change the locks tomorrow" emergency fund, I'd save as much as physically possible. You will likely have a period when you're making more but also have higher expenses and will not be able to max your retirement savings. Your future self will thank you for maxing what you can now.

Ameteur_Professional t1_iufxhfs wrote on October 31, 2022 at 12:44 AM

What other plans does OP have other than eventual retirement. Tax advantaged retirement accounts are great, but that money becomes locked up by the penalty.

It may be wise to keep a portion of their savings in taxable brokerage accounts or regular savings accounts so they can use it for something like a house down payment

Bright-Entrepreneur t1_iuf73s0 wrote on October 30, 2022 at 9:31 PM

Make sure you have 6 months’ worth of expenses in liquid savings account (Eg normal savings account tied to your checking). Make sure when budgeting for 6 months’ of expenses, you’re factoring in expenses per month if you were actually living on your own.

Save up enough money to actually live on your own (moving costs + deposit costs at an apartment or whatever).

After that, you should make sure you’re able to save 15% of gross income going forward to retirement even in future when you live on your own.

For now, while living at home, yes you should be able to save even more than that towards retirement or start building pile of cash for down payment on your own house.

ChiSquare1963 t1_iugiw8q wrote on October 31, 2022 at 3:37 AM

You need an emergency fund equal to 3-6 months of living expenses. Calculate the amount based on what it would cost you to live on your own, instead of with parents.

General guideline is to invest at least 15% of gross income for retirement, starting in your 20s, to be able to retire in your 60s. If you can do more while living at home, that is an excellent idea.

Are you paying estimated taxes yet? As a contractor, you are responsible for employee and employer share of social security and Medicare tax, plus paying in your own withholding for income tax.

Knipfty t1_iuf7803 wrote on October 30, 2022 at 9:32 PM

Build your cash up to 20k. You'll need some of that when you decide to move out on your own.

Then start investing 15% of your income into a Roth IRA. You are making about 45k per year, so 6,750 would be invested. If you still have more money to invest, then do that in a regular brokerage account. It will provide you with more financial flexibility. DO the 15% into Roths most of your adult life, and you will have plenty of money in retirement.

ArdenSix t1_iufypob wrote on October 31, 2022 at 12:53 AM

20k at his age is too much. At worst it might cost him 2k to secure an apartment and furnish it. Also, Roth is only doable up to the income maximum, he should be setting up a 401k first due to the higher contribution limit and no income cap. Roth as a bonus until they can't contribute anymore.