If I’ve saved enough in my 401k to sustain retirement for my spouse and I, does it make sense to drop contributions down to the match (14k) rather than continue to max it?
Age 34
401k: 830k
Roth IRA: 112k
Partner’s (age 32) Roth IRA: 106k
(They are self-employed and do not have a 401k)
Based on projections (4% and 7%), this should be 4.5M and 9.6M respectively by age 65… Our aspirational goal is to have a safe withdrawal rate of 200k a year in retirement so 5M ideally. This is super overkill based on our current monthly budget but maybe not so much in 30 years.
We are thinking of having a kid soon so the money saved would go towards daycare costs (3k a month).
Going to sleep now and will check thread in the morning. Really appreciate your time and input in advance.
Stop Maxing 401k and Just Do Match?
byu/crymeasaltbath inpersonalfinance
Posted by crymeasaltbath
8 Comments
> They are self-employed and do not have a 401k
Solo401k (or SEP IRA).
Add that to your internet research.
I would continue and just retire earlier than 65. But that’s just me.
$200K in ~30 yrs is the equivalent of ~$100K in today’s dollars. Just gut checking that’s enough to cover your expenses (and don’t forget healthcare).
If it is, then I’d say you’re fine to drop to the match.
If it’s pretax, as a W-2 employee continue to max it out. It’s less than $24k to max out, and you benefit from taking it off your AGI come tax time.
At some point you may switch to self employment and your tax benefits will increase greatly but until then, as a W-2, you only have so many avenues to reduce income tax.
What you’re describing is Coast FIRE. Based on your numbers, I really thinking reducing your contributions is within reason, especially since it’s going to day care.
If you’re not married your partner should continue adding to their accounts until they’re at a reasonable level to sustain themselves. They can also open a non-Roth IRA if they’re self employed
You may want to divert those funds to daycare for now and start increasing contributions again when those expenses come back down. Daycare is expensive but won’t last forever (though if you are planning on private school, that cost will last much longer). I will also say that having kids may make you want to accelerate retirement to have more time and freedom for family (it did for me) but everyone is different. You may also want to consider carving out some budget early on for college/education savings (in a 529 or another investment vehicle). I think your plan is fine but you’ll want to re-evaluate every so often and make sure you are still tracking against your goals, knowing goals and priorities may also shift.
the fact that there is a limit should tell you something: that the optimum is to put all your money in there. every last penny.
absolutely there are people who would do that if they could. and they’re not crazy or morons, they simply understand that these accounts are not really retirement accounts, they’re tax advantaged accounts.
the major advantage to traditional contributions of money is that it can be roth converted.
I think you’re being a tad too optimistic. We don’t know what bear years we will have ahead. we do know there is more bull years than bear years. Regardless, these are PRE tax dollars you’re giving up. And by the time you retire, value of that 5M will be more like 3M