I’m 38, sold my home for $1.3 million and save my money but I ‘wonder if I’ll ever be able to retire’ 

My income with bonus is $150,000. I have $150,000 in a traditional IRA, $50,000 in a Roth and $50,000 in my company 401(k) (20% Roth, 80% traditional). I’m currently maxing out my contribution, have a $4,000/year employer match plus put an additional $8,000/year in the company after-tax 401(k). I have around $1,300 per month in additional income. Am I saving enough? Would I be better off purchasing an income-generating property and cutting back on my retirement savings?

Help!

See: I’m 36 with $435,000 and want to retire early — ‘the earlier the better’ — but without a frugal lifestyle

Dear reader, 

First, kudos on being in your 30s, having so much saved, thinking deeply about your financial decisions and really keeping a pulse on your retirement security. That in and of itself is a huge accomplishment. 

You’re very lucky to be in a position where you earn the salary you do and have the accounts and employer matches you’re offered. It’s a situation not many young Americans find themselves in, and you should absolutely take advantage of it to the fullest extent. With the country moving in a way where private sector pensions are being phased out, Social Security is in the midst of some sort of change (Congress has never let it falter, but it does need help at the moment) and retirees being mostly responsible for their own retirement income, the sooner workers think about the finances behind their retirements, the better. A 401(k), an employer match and a nice salary are key ingredients when doing so. 

You ask if you’re saving enough, but truth be told, there’s really no way of knowing what “enough” is right now. You’re 38, so unless you plan on retiring substantially earlier than a traditional retirement sometime in your 60s, you likely don’t know what your expenses will be in retirement. No one can know for sure what housing, utilities, auto payments, healthcare, emergencies and so on will cost 20 or 30 years out. You can try and calculate what you would like to have in retirement income every year, factor in inflation, and work backwards to find a number to strive for, but that figure will likely change multiple times between now and when you’re actually near retirement. 

Check out MarketWatch’s column “Retirement Hacks” for actionable pieces of advice for your own retirement savings journey 

That being said, at this point in your journey to retirement, the focus should be to save, save, save, as much as you can without totally depriving yourself in the present. It appears you are doing that. 

If by income-generating property, you mean a focus on rental income, that’s definitely one way to bring in extra cash, but it often comes with a lot of work. There are months where you may not make money if you have vacancies, and then there are the less-than-ideal times when you’re paying for repairs, replacements and so on. Rental income is a great way to make money — a lot of people who retire early use it as one of their main sources of retirement income —, but it’s more intensive than stashing cash in a 401(k) or IRA. You also have to find reliable and responsible tenants, as the opposite can be a huge headache for you as a landlord. 

If you go that route, plan to keep extra cash on the side in case you need to fix something and, if you decide to eventually get multiple properties, consider hiring a trustworthy manager to help maintain the day-to-day business. Before purchasing property, make sure you look at the “bones” of the home or building, and get the details on the roof, pipes, history of the property and so on. 

You shouldn’t cut back too much on your retirement savings in lieu of rental property. Ideally, you’d take some of that profit and put 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 anyway. 

Also see: Should you be a landlord in retirement? 

You mention you have Roth and traditional accounts. That is great, since tax diversification is a huge advantage in retirement. It gives you the ability to choose how you source your retirement income, and therefore how much of a tax bill you could potentially face, and that is powerful. But it’s not the only tool. Diversifying the types of accounts you have helps, too. For example, you have a 401(k) and IRAs, but those accounts have restrictions, such as the accountholder need be 59 ½ years old to withdraw from them freely (Roths do allow investor contributions to be distributed penalty-free, but there are other withdrawal rules to keep in mind). 

Instead of putting all of your money for retirement into retirement accounts, you might want to try a brokerage account. Those are taxable, but there are fewer rules for distributions, and that could help if you were to retire early after all. 

For now, keep up the good work. The fact that you’re so invested in your retirement security already is a very good sign. 

Readers: Do you have suggestions for this reader? Add them in the comments below.

Have a question about your own retirement savings? Email us at [email protected]