Context:
married 34M / 30F one child 12months
Retirement so far 537,000 spread across roths, 401k, brokerage, and fully vested pension. Child has 529 already.
Our monthly budget typically is less than our take home pay with room for savings but some times there are months where very little is saved. We made a questionable choice of getting into a mortgage on a second home right before we found out my wife was pregnant, and I grossly underestimated how expensive kids are. Between a $3,000 mortgage, child care, and deductions for healthcare, HSA, dependent care, etc we’re feeling the pinch right now.
We have made some adjustments this month, and going forward we will have $400-700 extra to save in a perfect world. But it feels like its not enough still. I know the general consensus is dont let off the gas on retirement contributions, and in the past I have talked myself out of doing this once or twice before. but the idea of saving a little extra for the next 18 months or so in hopes to recast our mortgage or refinance if rates come down is a big pull to me.
Does it ever make sense to reduce retirement contributions? Or should we make due with our monthly surplus and tough it out?
Considering temporarily reducing retirement contributions to help our monthly budget
byu/illogicalDick inpersonalfinance
Posted by illogicalDick
3 Comments
Depends on your goals for when you want to retire and with how much. If you don’t have any goals, you should define some, at least at a high level (doesn’t have to be a perfect estimate), and then you can run some retirement calculators to see what it takes. If it will impact your goals, you can readjust them, but everything has a tradeoff.
At 34/30 with 537K, i think you’re off to a great start. Wish i had that much at that age.
I don’t see an issue with letting off the gas a little but, as long as you commit to getting back into it after a strict timeline.
The problem is, people often get used to the income they have and raise their lifestyle to match new found money, so then taking money away will be even tougher down the road. Will you be ready to reduce spend in 18 months is mortgage rates don’t drop? Would you consider selling that 2nd home in 18 months if rates don’t drop, now that you have a more important priority (your child)?
How much is in savings already? What is your savings target amount? What is the purpose of savings? (emergency/job loss, emergency/other, sinking fund/vacations, sinking fund/new car, etc?)
Yes it can make sense to reduce retirement contributions for cash flow purposes, and it seems like your retirement is already ok for your age so if you need to do this for a few months then it’s perfectly fine, IF:
1) You set a target date for when this ends. “we’re going to pause retirement for 6 months and then restart it”. And then stick to it.
2) you set specific goals for that money. it’s all going into savings, or it’s $xxx to pay down debt, or whatever. Do not let it just be “extra money”
3) Ideally you have the portion that is retirement contribution, go directly from your paycheck to a separate, non-checking account. For example if you’re used to having $1000 retirement taken out and seeing $6000 in your checking every month, divert the $1000 to a HYSA or some other account before it even hits checking. You don’t want to start seeing $7000 in checking or else it just looks like extra money you have to spend.
Pausing retirement contributions is perfectly valid but do not allow yourself to start down the slippery slope of spending it mindlessly. Your $400-700 that you can put into savings in a month is actually already really great. But if you want to supercharge your savings for a few months and get a head start, and then start retirement again, and have the 4-700 be your regular savings cadence, that should be fine.