That’s the question I’ve been asking myself many times over the last couple of weeks. For a number of readers that might be a strange question to ask. After all, not all people can afford to save money for retirement. And they certainly can’t be doing it all the time.
For me it’s different. I’ve maxing out my Roth IRA since it was invented. I also maxed out my 401k from all my post-college jobs for years. It was around $10,000 in 1998 then so it may not sound as impressive as it would be today. In the world of flat wages, it’s much harder to max out 401Ks now.
I moved from a standard software engineering career to blogging and side hustles in 2007. I got burned out with the long hours, the changing technology, and I just wanted to spend more time with family. The drop in income made it more difficult to fund retirement accounts, but I was still able to put some money aside.
My wife has been saving in her TSP (the government’s 401k plan) since she started working around 2000. As a pharmacist, she could afford to max out her retirement accounts too.
After so many years of maxing out retirement accounts and an incredible 10-year market run, we have saved up a great retirement nest egg – at least great compared to the average 43 year old person. It’s been a powerful habit that has contributed tremendously to our net worth. We currently have about 45% of it there, and another 45% in real estate (our own home and 3 rental properties) that will be mortgage-free around 2027.
There’s just one problem…
… we often live paycheck to paycheck.
We have some emergency funds, but not a lot. I can usually reach into a business account and shift around some money when we have a rental property renovation. Sometimes we use the HELOC on our home for an expense. We pay that debt back monthly. Obviously this isn’t financially ideal. It would be better if we just used cash on hand.
However, between saving for retirement, four 15-year fixed mortgages, and private school for two kids our “expenses” are high. I put expenses in quotes because saving (for retirement or anything else) is not your typical expense.
Those savings aren’t there when we look at how much cash we have available to use at the end of the month. It’s great for our net worth bottom line. In the case of TSPs and 401ks, that retirement money hasn’t been taxed. One exercise that I need to do (and maybe you do as well) is figure out how much money a 401k is really worth when you start to pay taxes on it upon withdrawal.
Our Retirement Future Looks Bright
When I last published our comprehensive retirement income plan in 2015, it looked like we might have around $200,000 a year in income.
My wife’s military pension forms a strong percentage of that. However, we also have the rental properties, the retirement accounts, Social Security (which will still be around in some form), and income from websites. Since then we’ve added dog sitting and a private equity investment with a high cash yield.
I intend to publish a new update this year, and my expectation is that it will be around $250,000. At the same time, we’ll have a paid off mortgage, and (relatively) cheap military health insurance. We even have my wife’s GI Bill that helps us save less for college. When we look at our future expenses they are relatively small.
We realize we are fortunate in all these areas. It took a lot of planning, but luck always plays a role in the execution.
A Little YOLO Can Be a Good Thing
As you can tell, we’re flying a little too close to the sun in our lives now. Some of it is because we’ve gotten a little “spendy” with restaurants and children STEM toys (my shopping addiction). The rest of it is the funding for the future. I don’t know if there’s such a thing as over-funding the future. However, we aren’t striking that balance.
The strong market performance in 2019 gave us more returns than we would have expected in three years. It seems like the right time to slow down on the future and build up some cash for today.