I’ve got a tough decision to make, and I’ve got two days to make it. I have to decide exactly how much per month I want to send to my 403b retirement account. One the one hand, I want to be super-aggressive and send the maximum allowable amount, which in my case would be $15,500 for 2007, or almost $1,3000 per month. On the other hand, I want to “hedge my bets” a bit and contribute something like $6000 per year, or $500 per month. The aggressive track would be way more than 15% of our pre-tax income (my wife’s contributes 5% of her income to a pension plan already). There are pros and cons to both approaches. I could even go somewhere in the middle, say $12,000 per year, or $1000 per month. I’m really, really stumped. We have a van that will need replacing in the next two years, and my car will need replacing in the next 3. If I want to pay cash for things, I need cash on hand, and not in a retirement account.
But, “out of site, out of mind”. If I tuck more cash away in my retirement account, then I will not be tempted to overspend or be undisciplined. I’ll let you know what I decide to do.
(To be honest, I’m leaning really heavily towards the super-aggressive plan. I could always go in mid-year and change the amount I’m contributing. We shall see.)
Resources related to the post:
403b Wise: The 403b Information Center
IRS Tax Information For Retirement Plans
The Savage Number: How Much Money Do You Need to Retire?
The Number : A Completely Different Way to Think About the Rest of Your Life
5 thoughts on “A Tough Decision”
If you are up for comments, I would say go with the $1000/month approach. Not totally agressive but still a ton of money. Save the $300 a month towards new purchases. You know they are going to come so you can just put the money in a high-yield savings account and forget about it there. Mentally you will know it’s for something so I highly doubt you will be tempted to spend it. If you go with uber-aggressive then when it’s time to buy those things what money will you use? I think you are in a prime spot right now to be able to both with success.
I look at it this way… Do you want to enjoy your financial freedom now or later? If later (in your 60’s), then max it. If you want to have the flexibility to ‘downshift’, then you should go the other route and do some taxable investing that will help provide you with a simple lifestyle, so you can do what YOU want to do and spend time with your family, travel farther West than the Mississippi River and truly enjoy your life while you still have that drive to live.
-Jeff & Heather
You should save up all but the Roth IRA amount in your 403(b), save the Roth amount separate and out of mind. Then, at the end of the year, put the money in the Roth if you have it, and not if you don’t. It would have to be emergency fund esqe (only touch in case of an emergency). Those are my thoughts anyway.
I have a similar situation, I just started a new job. My previous job (less money) I only contributed about $600 to my 403b. At my new job I decided to up it to $1100/month. While it does take up a large portion of my pre-tax income, If I didn’t put it in, I’d only see about 700 more in my net pay. I think it’s well worth it to go aggressive. Cheers and Good Luck.
Personally for us it’s a lot easier to just do it. With DH’s first real job we max out 401k and Roth IRAs. It’s not a permemant fixed thing in our budget, and we started at 26 and 28 (last year). Now when our incomes go up all other income can go to more retirement savings and fun stuff. We just didn’t allow ourselves any leeway in realizing what it would be like to live on more money.
If more people made retirement a line item like taxes and a mortgage, it’d probably be easier to budget. That’s why I like the 401k because it’s easier. I’d go and put the max in the 401k because you probably are also trying to pay off the house, being a DR follower.
However the benefits of 401k/Roth IRA can never caught up after you pay off the house because you’ll have more money than accounts to contribute to. So for us, if we did 15% we could pay off the house faster, but with our age and income, the opportunity cost to pass up the tax break of the 401k and chance for Roth IRA while we’re still eligible is too good to be true.
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