Today’s update is going to be very quick. We’ve got a storm, so the kids are home from school. My wife has 4.2 zillion Zoom meetings and I have a lot of snow shoveling to do. We haven’t had a storm in a few years, so finally the kids are old enough to pick up a shovel and help a bit too.
It was back in middle of January this year that I asked, Is it okay NOT to save for retirement. Some stuff happened since then*, and now it’s time to announce that we’ve decided not to save for retirement… at least for the next 6-7 months.
My wife won’t add funds to her government TSP plan (like a 401k). I won’t add funds to my solo 401k. We’ll still max out our Roth IRAs, but that is only because we can withdraw those contributions at any time without penalty.
Why the move now?
A lot of it has to do with the way the stock market has gone this year. I’m not referring to the drop in March. Back in January, I had felt like our retirement accounts were getting too high in comparison to the liquid cash we had on hand. It wasn’t like we were each 401k millionaires with 30 cents to our name, but it was lopsided nonetheless.
And here we are in December. I look at our retirement accounts and they are up 27% for the year.
We do have more liquid cash than we did at the start of the year due to less travel, grooming, and eating out. At the end of the day that 27% gain moves the needle even more past the point where I was questioning it before.
There are two other things weighing on the decision:
- More liquid cash now means my wife can choose to retire when she wants to. In some ways she can with a great pension already vested. There are some golden handcuff issues to consider. Also, sometimes she seems to be on the fence on whether she wants to retire or not. In any case, having more cash on hand makes that easier.
- If we invest some of this money in dividend stocks outside of retirement, we may end up paying fewer taxes down the line. If we take money out of a 401k plan we’ll have to pay taxes at our regular income tax rate. With my wife’s pension, that income tax rate may be fairly high. Well, it wouldn’t be too high, but it would be much higher than what qualified dividends get taxed at. Since our Roth IRAs are not taxed, we can pull out that money without considering tax rates.
There’s more detail in the original article that I linked to above. That’s about all I can do for today.
* Understatement of the year, right?!?!