I was reading a few posts on other sites when I came across a piece titled: “To Save Big For Retirement Or Not“, and I thought about my financial strategy for the present and future. At this point I now realize that I agree with my friend’s post… I’m on a path to live Retirement Rich but Life Poor. I want to tweak this 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’s my financial strategy and thoughts:
My Current Financial Strategy
At the beginning of the year, I noticed that I had more deductions thank what I received in actual discretionary (also called disposable or spreadable) income. To have more deductions that discretionary income means that I’m receiving less than 50% of the amount that my employer is paying me!
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 paycheck, and continually doing the math, I’ve come to the conclusion that my paycheck it correct. I knew that I was slicing it up quite a bit, but still it’s kind of shocking for me.
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 take a respectable bite out of my paycheck too.
- HSA Contributions – Seems like we’re all supporting ourselves now after Obamacare…
- 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 Money
because I’m spending at a subnormal level for the amount that I get paid, that 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 to 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 you 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) to 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 anytime. 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. The with the remainding money, I’m going to invest in my regular brokerage account, looking for some golden dividend stocks. By golden, I mean ones that have potential to keep growing while still yielding a dividend (maybe Apple by then?).
I’ll have more thoughts on this later…