I’ve been thinking about my financial strategy for the present and future. Not having anybody to ask about my investment strategy, I have to rely on myself to see what needs done (this is part of the reason I blog, to help others through my experiences). I now realize that I’m on a path to live Retirement Rich but Life Poor. I want to tweak my investment strategy a bit so that I’m on my way to have a better life by focusing on the present instead of trying to be Retirement Rich. You don’t hear many people write about saving too much for retirement, but that’s exactly what I’m currently doing! Here are my financial strategies and thoughts:
My Current Financial Strategy
At the beginning of the year, I noticed that I had more deductions from my paycheck than I received in disposable income versus last year’s paycheck. So “taxes+401k contributions+health insurance+other” was greater than what I had left to spend. So if I made 50k, 26k goes to deductions from my paycheck, while I only receive 24k to live on and invest.
I probably spent at least a good hour or two thinking something must be wrong, but after a few months of getting less than 50% of my gross paycheck, and continually doing the math, I’ve come to the conclusion that my paycheck is correct. I knew that I was putting a lot into retirement and other things, but geez…
Let me list out the deductions that are killing my paycheck?
- Taxes, no mystery here…
- 401(k) contributions – This year I’m maxing out the amount that I’m allowed to take out. In fact, I’m overshooting the max amount by $500 because I know that my employer will stop my contributions once I hit that maximum.
- Roth IRA – This year I’m maxing out this amount too. Previously, I’ve been doing experiments with this account and actually did great. Read my article called “My Roth IRA Has An Annual Growth Rate of 52.75 % Since Inception” if you are curious, or perhaps the title is enough!
- 529 Contributions – I contribute over 4,000 a year to 529 plans, this takes a respectable bite out of my paycheck too.
- HSA Contributions – It seems those of us with jobs are all supporting ourselves now after the Affordable Care Act. Maybe net good, but individually painful?
- ESPP Program – This is my shinning deduction that actually increases the amount I gain each year by $2,000! I wish I had more deductions like this one! Still is puts a monthly strain on me all the same. If your employer has an ESPP, and you don’t know if you should participate, read my article called “Getting Over 15% Return By Saving Money In An ESPP“. I highly recommend participating in an ESPP if you have the opportunity!
Okay, I haven’t even got to the meat of this post yet, but I feel obligated to present some of the “Life Poor” elements of my finances.
A Look At Retirement Saving
Because I’m spending at a subnormal level for the amount that I get paid, this allows me to max out my retirement contributions. After all, that’s what everybody says is the “Smart” way right? I use to believe that too, but now I’m not too sure, here’s why.
- I’ve read too many stories about people who were too frugal and until they died, they lived like a hermit hardly ever leaving their house. I’ve even read that some would eat out of their neighbors’ garbage cans. Yeah, they had millions when they died, but I don’t want to live that way to get there.
- Let’s face it, when you are old, you aren’t going to go clubbing or to concerts or be active in sports or really do much of anything that involves moving fast or getting very excited. Why be rich with nothing to do?
- Someday in the future, the government may decide that such retirement accounts are easy targets to raid and steal from. One never knows… Some say look at Social Security and Medicare and the state that those programs are in.
- Death and Accidents happen. You could be saving like a fiend in your retirement account, then some freak accident happens and you are dead. Or you get some incurable cancer, or some injury severely affects your mobility so that you are trapped in a wheelchair (Christopher Reeves for instance).
- You might get scammed and lose it all. Don’t believe me, ask any Bernie Madoff victim or Worldcom investor.
So what should I (we) do? Maybe go to a fortune-teller? No, instead create a balanced financial strategy that involves getting money to present investments and at the same time into retirement accounts too. The Roth IRA is a good in-between vehicle because you can withdraw your contributions at any time. It’s just the earnings that you can’t touch.
So in my particular case, next year I’m going to drop my contributions percentage down to 10% for my 401(k), but still, max out my Roth IRA. Then with the remaining money, I’m going to invest in my regular brokerage account, looking for some golden dividend stocks. By golden, I mean ones that have the potential to keep growing while still yielding a dividend (maybe Apple by then?).
I’ll have more thoughts on this later…
Don
I like being retirement rich. I’m happy with living frugally and I don’t mind putting money away for later. Why can’t we have retirement rich and life rich too? My quality of life is 1000x better just by not going to work anymore. 🙂
You’re retirement is a bit different from the middle class mold 🙂
When I’m talking retirement I mean retirement for the masses, those that will most likely retire at 62 to 67 (if they are luck and the world is stable).
In my post, I’m indirectly referencing retirement with either those that will retire 30 years in the future when how know what the world will look like, or are old and will miss opportunities that they can only experience while they are young.
That said, I applaud you for being able to do both! Retire young, and live well.
Hats off to you sir!
Those are all completely valid concerns about living frugally and not saving so much. But I don’t think you can live your life with “what ifs”. I feel it is important to set a goal and then make sure your actions are aligned to achieve it. But I also think the journey is just as important as reaching the goal. Forget working 80 hours a week to make more money. Forget spending all your time researching stocks. You’ve got to make time for the wife and kids, and have a little fun! What good is making money or saving for retirement if you don’t work on your most important investment – the people you love who are going to share it with you?
Totally agree, it’s all about balance and wise, experience oriented investing.
As someone in their late 20s, this is such a tough one! I JUST started saving for retirement, but it hurts every time I move a chunk of money in during tax time. I agree that I would rather enjoy my money now than when I’m an old fart, but then I look at comments like retirebyforty I feel like maybe I should be doing more so Im not a broke old person. I guess moderation is the way to go!
Yep, a balanced financial strategy is the way to go.
I’m still going to invest at least 10% into my 401k, and probably fully fund my Roth IRA each year, but at the same time I’m going to invest more money in my regular brokerage account in the present. A decent part of my regular portfolio is dividend based, and so I’m using dividends for recreation. I still plan on growing those dividend based investments so I can live better today. This way I live well today, and still have more than average when I retire some day. 🙂
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I am like you who is trying to save a lot for retirement. Right now, I am really living a simpler and frugal life and save quite a lot for the future. I want to live rich and free when I retire.
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There is a balance, but I’m with Joe… definitely at the end of the spectrum with being content with frugality, but loving the freedom we get from not being chained to a job or business…
If I achieve an 7% (but preferable an 8%) average return for the next 25 to 30 years, I’ll retire rich regardless (well, at least if inflation doesn’t go crazy). So I already have that financial part of my plan in process, not it’s time to focus on the here and now for me. It does help that I’m mostly debt free (or could be debt free tomorrow if I choose to do so). Not having a house mortgage is a great feeling.
I don’t know if we are considered retirement rich, but I think so. We have a paid off rental property (as of today, yay!) and we max out our Roth IRA’s each year. Next year we’re looking into a SEP 401k or IRA. In the meantime, mortgage payoffs and straight investments are our way of planning for our golden years. We could save more, but we like our current lifestyle.
Crystal, that path that you are currently on means that you are rich already, or will be within 5 years. 🙂
At you level, I like the idea of putting money into Roth IRAs. You should continue that while you can, since the way you are making money, that might not be an option for you in the future, which is obviously a great thing! Keep killing it!
I think you are living the lifestyle that I would like to live now that I’m focusing on my regular brokerage account. I’m still short about 50k, I wish I could get my spouse to work more, we’d be set if that were the case.
Everyone has to find their own balance. I’m with Joe on this one: frugality comes easy to us, so socking away the max. for the future makes good sense for us.
What I’m planning is to live through every day but still be able to enjoy it. Then, save for the future at the same time. It’s quite difficult but with the right plan and determination, it can be done.