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Everything I read tells me the same thing when it comes to saving for retirement: contribute to your 401(k) and start a Roth IRA.
I contribute to my 401(k) so that my employer-match is maximized, but that's it. I don't max out on the overall contributions, nor have I yet opened an IRA.
Many people would tell me I really should either max out the 401(k) and/or start funding a Roth. I totally understand why they'd say that; I realize the benefits of tax-free growth.
But the reality is, I have near-term goals that need addressing, namely purchasing a larger house, getting ready for a family, and saving up for a possible business venture.
Socking away a bunch of money for use when I'm 60 or beyond is the practical, conservative thing to do.
But what happens if I never reach that age? Or what if I do reach that age and do get to my money, yet I realize my "prime years" were spent living in a cramped house, working for someone else, and did not contain any luxuries?
Has it been worth it?
I'm not saying I'm not planning for a retirement, because I am with my 401(k) and other investments, including mutual funds and real estate.
I am planning to use those investments wisely and spread them out over my life. So I'm not so sure the bulk of my savings should go into formal retirement programs.
If anyone has any advice or has been in the same situation, I'd like to hear it.
Tom Valenti is a marketer and project manager who currently works for a financial institution in New Jersey. For more info, visit him at http://tomvalenti.com.
I've also been faced with this question. The following things seemed to make sense to me:
1) Calculate what you will need in retirement and make 100% sure you are saving enough. Most people are NOT saving enough by merely getting their employer match. However, this is a personal decision and calculation. I find most people haven't even run the numbers to know.
2) Assuming you have done #1, decide your goals. There is no way that blanket advice like "fund a Roth" can work if you don't even know someone's goals. Other goals are not in conflict with retirement, they are in addition to.
Money over and above your monthly living expenses should provide you the ability to achieve your goals. Although I would contend that for most people, retirement should be #1 on the savings goal list, once you are contributing enough to satisfy that goal, there is no reason why you shouldn't accomplish other goals. The object was to reach goals, not accumulate the biggest pot of cash.
Retirement or Mortgage?
That's the same question that I've been faced with. In my opinion, if you have a mortgage, first priority would be to pay down and get rid of that debt as soon as possible. You also have to weigh out that if the interest rate that is being charged for the mortgage is higher than what you would receive in your Retirement Fund, then pay off the mortgage first.
It is not really a conundrum if you know what your goals are. IRS sponsored retirement plans (and medicare and social security) are for people who wish to spend 30-40 years working and maximize their expenses during that time. For such a plan one should save 15-20% of one's income to continue at an uninterrupted expense level. Those who spend more than 85% of their income will get burned come retirement (e.g. they wont have any). Those who desire to retire earlier have to save in taxable accounts and reduce expenses rather than focus everything on a 401k, ROTH and a 30 year mortgage. There is rule 72(t) that allows some messing around with a ROTH prior to being 59.5.
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