Savings Priorities - Help!

[glitzy07]

I’m struggling with how to prioritize mine and my husband’s savings goals and am hoping for some general guidance, please! Even if it’s as simple as “save X% of take home for retirement, X% for other long term savings”, etc.

Everything I’m reading suggests both my H and I are in a good position as far as retirement is concerned, me more so than him. I’m 36 and have more than 3x my current salary in my 401k/Roth 401k, plus a pension from my current employer worth 6% of my salary that’s not included in that calculation. H is 43 and is just under 3x his salary, but also has 15 years of vested pension that isn’t included in that calculation.

We’re both currently contributing 17% overall, split between traditional and Roth 401k options, and increase 1% annually and with any raise we get.

My problem is that I feel like I’m saving aggressively for retirement and not saving at all for much else. We have a few thousand dollars liquid in savings as an emergency fund (definitely not enough) and are paying all of our bills with no debt besides a mortgage. But I don’t feel like we have any wiggle room to save for more specific goals (home projects, vacations, etc).

Does it make sense to pull back on retirement contributions to have more cash liquid to budget (we use YNAB) for more specific non-retirement goals? Specifically I’m thinking creating a bigger true e-fund and saving for vacation/home projects year round instead of using potential bonus or tax refund money as our vacay fund. If so, would you pull back from traditional or Roth and from one or both of us? I’m the higher earner, making slightly less than 1.5x my H on our base salaries.

I don’t want to lose out on the compound interest, and am having an emotional reaction to decreasing those contributions after building them up so much over the years. But I also don’t want to feel like we’re so strapped and can’t actually enjoy some of our earnings in the now, instead of hoping we’re in good enough health in retirement to enjoy it. My dad retired this year but isn’t healthy enough to actually even enjoy the time he has, so that’s definitely on my mind.

TIA for any thoughts and advice!

[dragon's breath]

I ran into this myself a few years ago. I was facing a series of cuts to income (took a paycut, son aged out of child support, had to start filing single instead of head of household). At the same time, extra expenses/big goals were coming up (helping with college, paying off property, needing to replace a car, and saving to build a house).

I chose to cut my retirement contributions down to just enough to receive my match. Replaced my car, paid off the property, helped with college, so down to the last goal of building a new house. My income is finally about where it was when I dropped down too. So now, I max a Roth IRA, and I contribute about 9% to my retirement again.

This is one of the advantages of starting young and being consistent with contributions, as well as having some kind of pension. Save enough early on, and you can ease up for a while to focus on other goals. As you achieve those, you can put more into retirement again.

I did a ton of calculations to come to this decision. The money I add to my account at this point is going to grow a lot less than the money already in my account. I think I had around 4.5x my income when I chose to cut back. Don't regret it at all.

[ellipses84]

We are in a similar situation with low liquid savings but I don’t feel like our retirement is in a good enough place to cut back contributions. I’m sure you are at a point where your retirement is growing aggressively (yay compound interest!) and you’ll see more impact from that than a small reduction in % of contributions. I suggest you look at your budget and see if there’s anywhere you could cut back, even if it’s $100/ month, bi-monthly or weekly to put to savings. I also think you could pull back on your DH’s retirement since he has the pension, but also consider how more taxable income will impact your taxes.

Do you have save to spend accounts? There are definitely going to be future expenses you need more savings for. I recommend 4 savings categories - e-fund, house, car and vacation.

[glitzy07]

Nov 3, 2021 10:35:33 GMT -5 ellipses84 said:

We are in a similar situation with low liquid savings but I don’t feel like our retirement is in a good enough place to cut back contributions. I’m sure you are at a point where your retirement is growing aggressively (yay compound interest!) and you’ll see more impact from that than a small reduction in % of contributions. I suggest you look at your budget and see if there’s anywhere you could cut back, even if it’s $100/ month, bi-monthly or weekly to put to savings. I also think you could pull back on your DH’s retirement since he has the pension, but also consider how more taxable income will impact your taxes.

Do you have save to spend accounts? There are definitely going to be future expenses you need more savings for. I recommend 4 savings categories - e-fund, house, car and vacation.

Just this year I started using "sinking funds" in YNAB to account for lots of our true annual expenses, such as budgeting $9/month for our Shipt Membership instead of having to find the $99 in March when the renewal is due. That has definitely helped from a cash flow perspective. We just got some relief in daycare costs in September when my youngest started K and now we're only paying for before/after care instead of all day daycare. I've repurposed that money to make sure that we're fully funding all of those fixed annual bills each month, but haven't had much extra to throw into that E-fund/house/car/vacation bucket. 

I'm definitely thinking of the possibility of pulling back contributions as a short term solution to try to build up more of the liquid savings. For example, my husband's truck is probably getting closer and closer to it's last leg, and right now when I look at our take home budget I'm struggling to see how we'd even cash flow a payment while also still prioritizing those sinking funds and true expenses. Part of that is that I started doing that in the middle of the year and some expenses are due sooner than a year (i.e. our Prime membership renews in January, but I didn't add that sinking fund until June, so instead of being $10/month it's $20/month until we hit January and then it will drop down to $10/month since I'll have a full year to save for the next renewal.)

[simpsongal]

I think we have almost too much in retirement, so I get that feeling. By 40 I think we'll have 4 times our income in retirement savings.

We did pause 529 contributions this year to take on more house projects. And I've kept my retirement contribution at 10% (employee adds another 5%) match rather than increasing w/each raise. I also have a pension and social security. I could also direct more into a Roth TSP, but I prefer to have the tax savings now. And I don't plan for it, but expect DH and I will each get some inheritance.

My dad died at 68, nothing is guaranteed, I want to have a nice life now. It's definitely a balance.

[lacey]

Personally, I would be comfortable dropping down to 15% including my employers match for awhile to get my E-fund up to a more comfortable amount. Depending on just how low the E-fund amount is I would consider dropping down to just the match to get it up more quickly but I’d want that to be a pretty short term situation. I’d also be fine with it all going into a 401k instead of the Roth 401k to save a little more money. Once the E-fund is in better shape I’d probably bump my contribution back up to 15% + employer match and use that extra money towards the house and vacations.

[dr.girlfriend]

It's fine if you're not comfortable saying, but how close are you to maxing out your retirement options and how close are you to the threshold at which you'll no longer be eligible to contribute to a Roth? That would probably impact my judgment.

I'm trying to balance saving and spending more judiciously than in the past. To be honest as a procrastinator I tend to just save for future stuff that I never actually get around to doing. In the past few years I've lost two family members who died in their 40s...one died almost instantly and the other was ill for more than five years, but neither circumstance made things any better. We also *did* finally take a trip and it reminded me how damn healthy you have to be to travel some places! It has really made me reprioritize taking some big trips while we're still relatively young and healthy and our kid can join us. Of course, just in time for COVID to hit. ;-)

[kershnic]

Honestly I would pull back on retirement savings for a while, maybe down to 13%. A little from each of you to make it feel fair, but maybe slightly more from yours since you're ahead of him. But if you think you might want to both retire around the same time, you may need to be ahead of him.

We are what I would consider on track for retirement (both age 39, just under 3x saved for retirement, will easily meet 3x by 40 benchmark). We currently save around 14% of income, including employer match, for retirement. Rough estimate I budget maybe 12% for vacation and house projects? I do want to live comfortably in retirement and have funds for things like travel then, but enjoying life now is also important to me.

Like you and others have noted, my uncle died in his early 60s with a fully funded retirement account. I think about that when I think about the balance.

[glitzy07]

Nov 4, 2021 9:23:54 GMT -5 dr.girlfriend said:

It's fine if you're not comfortable saying, but how close are you to maxing out your retirement options and how close are you to the threshold at which you'll no longer be eligible to contribute to a Roth? That would probably impact my judgment.

I'm trying to balance saving and spending more judiciously than in the past. To be honest as a procrastinator I tend to just save for future stuff that I never actually get around to doing. In the past few years I've lost two family members who died in their 40s...one died almost instantly and the other was ill for more than five years, but neither circumstance made things any better. We also *did* finally take a trip and it reminded me how damn healthy you have to be to travel some places! It has really made me reprioritize taking some big trips while we're still relatively young and healthy and our kid can join us. Of course, just in time for COVID to hit. ;-)

From an AGI standpoint, we were right around the limit for a Roth IRA last year due to some bonuses on my husband's side. This year our income will be lower because he didn't get any bonuses and so we probably still have ~$25-30k to go this year before being phased down. I would expect that gap to be closed next year with my expected bonus in March, if it comes to fruition, and if H gets any bonuses next year. That said, I've never contributed to a Roth IRA and all of my retirement is currently in 401k/Roth 401k. I was actually wondering if it's worth contributing if I'm potentially going to be phased out sooner rather than later.

As for how close we are to maxing out the 401k, if I kept all things as they are right now I'd be around $2,500 shy of the contribution limit at the end of the year for me. My husband less so (not sure on actual numbers right now), due to his lower base. 

[glitzy07]

Nov 4, 2021 10:14:58 GMT -5 kershnic said:

Honestly I would pull back on retirement savings for a while, maybe down to 13%. A little from each of you to make it feel fair, but maybe slightly more from yours since you're ahead of him. But if you think you might want to both retire around the same time, you may need to be ahead of him.

We are what I would consider on track for retirement (both age 39, just under 3x saved for retirement, will easily meet 3x by 40 benchmark). We currently save around 14% of income, including employer match, for retirement. Rough estimate I budget maybe 12% for vacation and house projects? I do want to live comfortably in retirement and have funds for things like travel then, but enjoying life now is also important to me.

Like you and others have noted, my uncle died in his early 60s with a fully funded retirement account. I think about that when I think about the balance.

Thanks for your thoughts!

For some additional context we get the following matches:
H - 50% up to 7% (3.5% total)
Me - 100% up to 6% + 6% of my income put into the company's pension plan (12% total)

Even if I dropped to the just the match, I'm still having 18% of my total income put into some kind of retirement vehicle (12% 401k, 6% pension). If I dropped H to his match, he'd be at 10.5% going to his 401k (plus he has the 15 years of vested pension from his previous union employer).

I'm thinking that I'm going to split the difference and drop us both down to something like 9% for now, which will give us ~$1k extra take home each month to aggressively save to build up the emergency fund, etc. 

We generally get a small refund at tax time, but I'm expecting it to be larger this spring. We deferred the extra child tax credit because we knew our income would be vastly different this year (lower) than last year, so I expect that we'll get that extra in our refund. At the same time, my potential bonus would come in March. At that point I would use the tax refund and bonus to fill all of our sinking funds and savings goals. Then I'm thinking I would ratchet it back up to the contribution point we're at now or close to it.

[dr.girlfriend]

Nov 4, 2021 12:02:19 GMT -5 glitzy07 said:

Nov 4, 2021 10:14:58 GMT -5 kershnic said:

Honestly I would pull back on retirement savings for a while, maybe down to 13%. A little from each of you to make it feel fair, but maybe slightly more from yours since you're ahead of him. But if you think you might want to both retire around the same time, you may need to be ahead of him.

We are what I would consider on track for retirement (both age 39, just under 3x saved for retirement, will easily meet 3x by 40 benchmark). We currently save around 14% of income, including employer match, for retirement. Rough estimate I budget maybe 12% for vacation and house projects? I do want to live comfortably in retirement and have funds for things like travel then, but enjoying life now is also important to me.

Like you and others have noted, my uncle died in his early 60s with a fully funded retirement account. I think about that when I think about the balance.

Thanks for your thoughts!

For some additional context we get the following matches:
H - 50% up to 7% (3.5% total)
Me - 100% up to 6% + 6% of my income put into the company's pension plan (12% total)

Even if I dropped to the just the match, I'm still having 18% of my total income put into some kind of retirement vehicle (12% 401k, 6% pension). If I dropped H to his match, he'd be at 10.5% going to his 401k (plus he has the 15 years of vested pension from his previous union employer).

I'm thinking that I'm going to split the difference and drop us both down to something like 9% for now, which will give us ~$1k extra take home each month to aggressively save to build up the emergency fund, etc. 

We generally get a small refund at tax time, but I'm expecting it to be larger this spring. We deferred the extra child tax credit because we knew our income would be vastly different this year (lower) than last year, so I expect that we'll get that extra in our refund. At the same time, my potential bonus would come in March. At that point I would use the tax refund and bonus to fill all of our sinking funds and savings goals. Then I'm thinking I would ratchet it back up to the contribution point we're at now or close to it.

Just a reminder that as you drop pre-tax contributions you'll increase your MAGI and potentially push yourself out of Roth territory!  I know for the last few years we were able to contribute to Roth I waited until my taxes were all done to figure out if I was eligible or not and then walked a check over in early April.  :-)

I would definitely
- fund the match for both of you
- fund Roths for both of you (if eligible)
- fund more on 401k/403b to the extent that you are comfortable with

And then bulk up your efund/vacation with the rest.  

It's definitely MUCH harder to plan when you have fluctuating income.  I know while my husband was switching jobs all around -- full time at one place, full time at another, then part-time at that place, then fully freelancing -- I just gave up on trying to get it right.

[mlkgls]

glitzy07, I think your proposed plan sounds like a good one and is similar to mine last year. I’d been saving fairly aggressively but felt like money was tighter than it really was because it was already spoken for due to retirement, 529, and savings. I dropped my personal contribution from 17% to 10% for close to a year to be able to allocate money for a large home project. I’ve since raised it back up, but I don’t regret it at all and I have sinking funds that are monthly budget line items for smaller planned expenditures. 

I would set a concrete goal ($xx,xxx saved by Y date) for your Efund and projects so that you have an endpoint, but agree with PP that life is a balance. 

[glitzy07]

Nov 4, 2021 20:51:12 GMT -5 mlkgls said:

glitzy07, I think your proposed plan sounds like a good one and is similar to mine last year. I’d been saving fairly aggressively but felt like money was tighter than it really was because it was already spoken for due to retirement, 529, and savings. I dropped my personal contribution from 17% to 10% for close to a year to be able to allocate money for a large home project. I’ve since raised it back up, but I don’t regret it at all and I have sinking funds that are monthly budget line items for smaller planned expenditures. 

I would set a concrete goal ($xx,xxx saved by Y date) for your Efund and projects so that you have an endpoint, but agree with PP that life is a balance. 

Great idea about planning an endpoint! I love that, thank you!