Up until this month I’ve been contributing steadily to my 401k at work, over the last 9 1/2 years. My company contributes a flat 3% of salary for each of our employees, which is a nice benefit for many folks who might not have the means to contribute to a matching plan. I’ve been fortunate enough to contribute either 7% or 9% of my own money for most of that time, which has been great. I can run calculations to see how much that’s going to help our savings after age 59 1/2.
But when I stopped to consider things recently I realized that I don’t want to continue that, at least for the short term. So two weeks ago I submitted a request to change my contribution level to 0%. Yep, zero. Now before you close your browser in disgust, please hear me out.
Some folks out there have the means to contribute heavily to retirement funds (IRAs, 401ks, etc) AND save like mad Mustachians for early retirement. That would be awesome, but all anyone can do is the best with what you have, and as your goals would dictate.
What Are My Goals?
As I’ve begun to write about, my goals are a little different from most people I know. I have 2 children, aged 4 and 2 as of this writing, and my wife and I hope to have a 3rd just as soon as we can. We LOVE being parents. It’s a role I’ve been looking forward to ever since I was young, and so far I’m loving every minute of it. OK, most minutes of it. There are days in the trenches that aren’t the most fun, but high-level it’s the most rewarding thing I’ve ever been a part of.
I have a strong desire both to [a] be the best dad I can be and [b] be as involved as I can be in my kids’ childhood years. I would love to find a way to contribute to their schooling, possibly teaching a few classes to them.
Other goals of mine include being active in my local church and getting out of the rat race that is corporate America. Some of my goals and desires overlap, but that’s okay, you get my drift.
So how does stopping my 401k contributions play into this? Simple. I want my money to be working for me in the short term as well as the long term. As much as it sounds good to say “I’m aiming for a $3 million (or more) nest egg”, I’m weighing the cost of that plan against sacrificing so much of my time and energy before then.
I currently have around $60k in my 401k account. Crunching the numbers (3% ongoing contribution from my employer, 35 more years, 6% return) I’m looking at around $800k in 401k savings for retirement. That’s assuming that I don’t save another dime between now and then, which is NOT the plan.
Outside the 401k
Other opportunities for investment exist outside of a 401k. The first stop on my list is to finish paying off my home mortgage as soon as possible. The snowball effect of adding my 401k dollars to my already-aggressive mortgage payment means I’m only looking at around 22 more payments, and when that’s done we’ll be able to save that entire amount each month. Currently that amounts to $20,400/year, or 27% of our annual income.
What could we do with that $20k/year once it’s available? Maybe nothing! It’s entirely possible, with the mortgage paid off, that I’ll end up working a different type of job with less income, which will allow me to be at home a bit more. Or, start my own business. Those are very attractive ideas that I’m still kicking around.
If we do end up saving that amount, however, I’ll consider investing in some Vanguard index funds, REITs, or something similar. I’ve also dabbled in some technical stock trading in the past, which I enjoyed.
Whatever direction we move in at that point, the driving factors won’t be all about the money.