When Can We Stop Contributing to Retirement Funds

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hokiefan4527
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Joined: Wed Mar 31, 2021 3:21 pm

When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

My husband and I are 27 years old. He is almost 28. I'm wondering how long we should continue to max out retirement contributions. Our ultimate goal is to "retire early" from W2 employment before age 40 and live on income from our rental properties and home repair business.

Here are the details:

Cash/Marketable Securities - $59,302
HSA - $22,439
Retirement (All Roth) - $219,875
UTMA for 6 month old - $8,261
Real Estate (incl. primary residence) - $792,000

Real Estate Debt - $448,000

Rental Cash Flow (monthly income less debt pmts) - $39,000

Assume Net Cash Flow is $25,000 after accounting for operating expenses/vacancy.

Still in beginning stages of the home repair business so I don't know how much income it will provide.

Looking at buying a duplex which will add net $5,000 to rental cash flow.

If we stopped contributing to retirement today, that would be around $2,000,000 in retirement accounts by the time we are 60. It's just hard to say how far $2,000,000 will go in 32 years with inflation, etc. The rentals are also part of our retirement plan. Either as cash flow or selling them.

If we wanted to be extreme, we could live in one of the rental properties, thus have no primary mortgage.

Living Expenses: If we didn't have a primary mortgage or child care costs, I would say we could live on a range of $25,000 - $60,000. The higher end being extremely extravagant living and possibly having a hard time even spending that much money.
lakpr
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Re: When Can We Stop Contributing to Retirement Funds

Post by lakpr »

If you are planning for early retirement, especially around the age 40, I would suggest that you should ALWAYS max out the retirement accounts as long as you are working. Never slack off, never leave a dollar of tax-advantaged space unused.

I do not think that you should be doing All Roth 401k though. But I think for now it is ok. Tax rates are poised to go up in January 2026 unless Congress revises the tax laws before then, which, let us be honest, does not look likely. So plan for a tax hike in 2026. Once 2026 rolls around, you should start making Traditional 401k contributions.

I would also caution you to not count the chickens until they hatch. $2 million by age 40 may be a nice projection, but you may not attain it.
EnjoyIt
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Re: When Can We Stop Contributing to Retirement Funds

Post by EnjoyIt »

Considering how young you are and how long your retirement is planned to be, I would keep putting money into retirement accounts for now. This is the formula I would use on when I have enough.

(((Your real estate cashflow) - (expected upkeep costs)) * (70-80% to account for possible vacancies)) + (3.5% of your investment assets) = equals your expenses.

based on your risk tolerance adjust the vacancies potential and investment asset withdrawal rate.
I would also make sure you have enough W2 income to have 40 total quarters of social security payments so that you qualify for social security. Better yet, make sure you fill up the 1st bend point of your social security to make the most out of it when you finally do get social security. Here is a link to explain what I mean:
https://www.physicianonfire.com/ssa2017/
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
EnjoyIt
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Re: When Can We Stop Contributing to Retirement Funds

Post by EnjoyIt »

hokiefan4527 wrote: Wed Jun 23, 2021 11:53 am Living Expenses: If we didn't have a primary mortgage or child care costs, I would say we could live on a range of $25,000 - $60,000. The higher end being extremely extravagant living and possibly having a hard time even spending that much money.
I also wanted to comment. You would be surprised how easy it is for your assumptions on how much you spend can change, especially as you have more money to spend it on, as you get older, as you have more kids, as your kids get older and want things, as your parents age, as you age, etc.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
Topic Author
hokiefan4527
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Re: When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

lakpr wrote: Wed Jun 23, 2021 12:11 pm If you are planning for early retirement, especially around the age 40, I would suggest that you should ALWAYS max out the retirement accounts as long as you are working. Never slack off, never leave a dollar of tax-advantaged space unused.

I do not think that you should be doing All Roth 401k though. But I think for now it is ok. Tax rates are poised to go up in January 2026 unless Congress revises the tax laws before then, which, let us be honest, does not look likely. So plan for a tax hike in 2026. Once 2026 rolls around, you should start making Traditional 401k contributions.

I would also caution you to not count the chickens until they hatch. $2 million by age 40 may be a nice projection, but you may not attain it.
The $2,000,000 was at age 60 if we stopped contributing now.
Rainmaker41
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Re: When Can We Stop Contributing to Retirement Funds

Post by Rainmaker41 »

Normal retirement is a component of early retirement, so you still need to fund it. Make full use of all available tax shelters (“retirement accounts”).

What real rate of return are you assuming?
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alfaspider
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Re: When Can We Stop Contributing to Retirement Funds

Post by alfaspider »

Don't think of them as "retirement funds." Think of your accounts as tax advantaged space. The tax advantaged accounts are the best tax break going for middle to lower-upper class, regardless of what you want to do about retirement.
lakpr
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Re: When Can We Stop Contributing to Retirement Funds

Post by lakpr »

hokiefan4527 wrote: Wed Jun 23, 2021 12:21 pm The $2,000,000 was at age 60 if we stopped contributing now.
You have around $250k of retirement funds, you are expecting those funds to be $2 million at retirement, you are assuming an 8 fold increase over 32 years. Excel tells me that you are assuming a 6.5% rate of return, and this is a REAL rate of return (over and above inflation).

Sure you may achieve it, but you may not either ... I have lived through the "lost decade" from 1999 to 2009, when the rate of growth in that decade is barely 0.2%. I am always skeptical when rosy projections are made and assumed to last through three decades.
SnowBog
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Re: When Can We Stop Contributing to Retirement Funds

Post by SnowBog »

The problem is, we have no way of knowing what the market will return... If we end up close to 3% (lower returns or higher inflation that eats into returns), you'll only have around $780k...

The primary thing you can control is how much you save. This also has a secondary benefit in that the money you save isn't spent, thus keeping your expenses lower. And since retirement is based on having enough to cover expenses, lower expenses means you have less to save (or can get to "early retirement" that much sooner).

If it were me, I'd keep saving (but balance with enjoying life along the way) and enjoy the rewards when you actually have enough to retire early.
wetgear
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Re: When Can We Stop Contributing to Retirement Funds

Post by wetgear »

You could stop whenever, but you shouldn't. Optimal strategy is to always maximize the tax advantaged space available to you.
tigermilk
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Re: When Can We Stop Contributing to Retirement Funds

Post by tigermilk »

You are a bit naive to bank on $2M with no more contributions. It is possible to get there with no more, but odds are that you won't. A better strategy would be to take your foot off the pedal once your physical balance actually gets to your target amount.
furikake
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Re: When Can We Stop Contributing to Retirement Funds

Post by furikake »

OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
Gill
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Re: When Can We Stop Contributing to Retirement Funds

Post by Gill »

furikake wrote: Wed Jun 23, 2021 4:26 pm OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
No, that has to be annual income.

Stopping contributions to retirement funds at age 27 is nuts.
Gill
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Charon
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Re: When Can We Stop Contributing to Retirement Funds

Post by Charon »

Consider also that stopping retirement contributions not only affects how much money you will have saved, but it also affects how much money you spend. If you no longer save it, you'll start spending it. And then what you need to spend to maintain the life you expect has risen, which raises how much you need to have saved... A high savings rate is good protection against lifestyle creep.
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MrBobcat
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Re: When Can We Stop Contributing to Retirement Funds

Post by MrBobcat »

hokiefan4527 wrote: Wed Jun 23, 2021 11:53 am
If we stopped contributing to retirement today, that would be around $2,000,000 in retirement accounts by the time we are 60. It's just hard to say how far $2,000,000 will go in 32 years with inflation, etc. The rentals are also part of our retirement plan. Either as cash flow or selling them.

It might be, it might not be. Regardless once you forgo using tax deferred space there's no going back

If we wanted to be extreme, we could live in one of the rental properties, thus have no primary mortgage.

And then no rental income to offset the mortgage on the rental and it would then become your primary mortgage

Living Expenses: If we didn't have a primary mortgage or child care costs, I would say we could live on a range of $25,000 - $60,000. The higher end being extremely extravagant living and possibly having a hard time even spending that much money.

But you do have a primary mortgage and child care costs. What are you living on currently? If this is what you think you'll spend during retirement, again, maybe, maybe not. That's a long time in the future. I'm struggling with how much I want/need to spend 3 years in the future.

Bottom line don't stop contributing to retirement funds now, you'll only reduce your options down the road.
Normchad
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Re: When Can We Stop Contributing to Retirement Funds

Post by Normchad »

Gill wrote: Wed Jun 23, 2021 4:29 pm
furikake wrote: Wed Jun 23, 2021 4:26 pm OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
No, that has to be annual income.

Stopping contributions to retirement funds at age 27 is nuts.
Gill
I agree. This would be nuts

In terms of spending, my health insurance premium will be $24K next year. Including actual medical costs, I will spend $30K just on that.

These people haven’t won the race. They just started……
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gwe67
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Re: When Can We Stop Contributing to Retirement Funds

Post by gwe67 »

Normchad wrote: Wed Jun 23, 2021 5:39 pm These people haven’t won the race. They just started……
And they're buying a farm and a $54,000 pickup.
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exodusNH
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Re: When Can We Stop Contributing to Retirement Funds

Post by exodusNH »

hokiefan4527 wrote: Wed Jun 23, 2021 11:53 am My husband and I are 27 years old. He is almost 28. I'm wondering how long we should continue to max out retirement contributions. Our ultimate goal is to "retire early" from W2 employment before age 40 and live on income from our rental properties and home repair business.

Here are the details:

Cash/Marketable Securities - $59,302
HSA - $22,439
Retirement (All Roth) - $219,875
UTMA for 6 month old - $8,261
Real Estate (incl. primary residence) - $792,000

Real Estate Debt - $448,000

Rental Cash Flow (monthly income less debt pmts) - $39,000

Assume Net Cash Flow is $25,000 after accounting for operating expenses/vacancy.

Still in beginning stages of the home repair business so I don't know how much income it will provide.

Looking at buying a duplex which will add net $5,000 to rental cash flow.

If we stopped contributing to retirement today, that would be around $2,000,000 in retirement accounts by the time we are 60. It's just hard to say how far $2,000,000 will go in 32 years with inflation, etc. The rentals are also part of our retirement plan. Either as cash flow or selling them.

If we wanted to be extreme, we could live in one of the rental properties, thus have no primary mortgage.

Living Expenses: If we didn't have a primary mortgage or child care costs, I would say we could live on a range of $25,000 - $60,000. The higher end being extremely extravagant living and possibly having a hard time even spending that much money.
I think you are vastly underestimating your expenses and overestimating market returns.

Child care is going to cost you $2,000/mo month unless you can do it yourself.

Health insurance is going to cost a fortune for a family of 3. The "affordable" plans will have huge deductibles and perhaps payment limits. In 2005, I had a bout of appendicitis. I was in the hospital for about 18 hours and had no complications. My total hospital bill was about $20,000 in 2005 dollars.

What happens with the next pandemic hits? The government has already set the precedent that they can prohibit you from evicting tenants for nonpayment. How would you survive in such a scenario? What if one of the units burns down? Will insurance make you whole, and if so, how long will that take? What if one of you gets into a car accident, leaving that person permanently disabled?

Real estate, like the market, doesn't always go up. I bought my house in 2005. Its value didn't recover from the crash of 2009 until now. The stock market, from 1999 to 2012 returned about 0%. $10,000 invested in 1999 was worth $5,400 in Feb 2009 (adjusted for inflation.)

When you sell your properties, on top of the normal real estate expenses, you will owe capital gains taxes. Further, assuming that you're depreciating your rental properties, you will also owe recapitalization taxes.
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Re: When Can We Stop Contributing to Retirement Funds

Post by edudad »

furikake wrote: Wed Jun 23, 2021 4:26 pm OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
OP - can you confirm this? Is 39k monthly or yearly? Makes a big difference.
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Re: When Can We Stop Contributing to Retirement Funds

Post by Yarlonkol12 »

alfaspider wrote: Wed Jun 23, 2021 12:29 pm Don't think of them as "retirement funds." Think of your accounts as tax advantaged space. The tax advantaged accounts are the best tax break going for middle to lower-upper class, regardless of what you want to do about retirement.
+1
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Re: When Can We Stop Contributing to Retirement Funds

Post by SuzBanyan »

edudad wrote: Thu Jun 24, 2021 7:09 am
furikake wrote: Wed Jun 23, 2021 4:26 pm OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
OP - can you confirm this? Is 39k monthly or yearly? Makes a big difference.
In a post on a thread regarding buying a new truck, the OP stated: “The rentals net about $2,000 per month if there's no repairs that month.” That seems to be essentially the same as the net income from rentals in the original post in the current thread: “Assume Net Cash Flow is $25,000 after accounting for operating expenses/vacancy”
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Re: When Can We Stop Contributing to Retirement Funds

Post by Jags4186 »

What is the goal of cutting back your retirement contributions? Is it to spend more money now or is it to pursue investment opportunities outside of retirement accounts? If the answer is to spend more now, consider every penny you spend more requires even more savings to support once you have no income. $2,000,000 in 32 years is going to have lost likely at least 50% of it's purchasing power...

It's very hard to go backwards in spending which is why many on this forum advocate having reasonable expenses. There have been a plethora of "how much car can I afford" posts lately... Once you start driving a $75k+ Mercedes, it's hard to go back to a Honda.
Silverado
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Re: When Can We Stop Contributing to Retirement Funds

Post by Silverado »

I’ll pile on and say never.

Stop when retired, not a day before.

There will be so many changes in the next decades, that it is surely prudent to work for flexibility. And as stated, once you don’t contribute, that door for that year is gone.
stoptothink
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Re: When Can We Stop Contributing to Retirement Funds

Post by stoptothink »

SuzBanyan wrote: Thu Jun 24, 2021 7:47 am
edudad wrote: Thu Jun 24, 2021 7:09 am
furikake wrote: Wed Jun 23, 2021 4:26 pm OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
OP - can you confirm this? Is 39k monthly or yearly? Makes a big difference.
In a post on a thread regarding buying a new truck, the OP stated: “The rentals net about $2,000 per month if there's no repairs that month.” That seems to be essentially the same as the net income from rentals in the original post in the current thread: “Assume Net Cash Flow is $25,000 after accounting for operating expenses/vacancy”
There are a lot of moving parts in their financial picture and OP doesn't seem to have a good handle on them. Based on this and their previous thread about the truck and farm, my recommendation is to slow down and simplify.
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hokiefan4527
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Re: When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

furikake wrote: Wed Jun 23, 2021 4:26 pm OP is saying they have $39,000/month in rental income (with expenses taken out already), that would be an income of $468k/year excluding their W2 income, right?
annual. not per month. I wish!
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hokiefan4527
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Re: When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

MrBobcat wrote: Wed Jun 23, 2021 4:51 pm
hokiefan4527 wrote: Wed Jun 23, 2021 11:53 am
If we stopped contributing to retirement today, that would be around $2,000,000 in retirement accounts by the time we are 60. It's just hard to say how far $2,000,000 will go in 32 years with inflation, etc. The rentals are also part of our retirement plan. Either as cash flow or selling them.

It might be, it might not be. Regardless once you forgo using tax deferred space there's no going back

If we wanted to be extreme, we could live in one of the rental properties, thus have no primary mortgage.

And then no rental income to offset the mortgage on the rental and it would then become your primary mortgage

Living Expenses: If we didn't have a primary mortgage or child care costs, I would say we could live on a range of $25,000 - $60,000. The higher end being extremely extravagant living and possibly having a hard time even spending that much money.

But you do have a primary mortgage and child care costs. What are you living on currently? If this is what you think you'll spend during retirement, again, maybe, maybe not. That's a long time in the future. I'm struggling with how much I want/need to spend 3 years in the future.

Bottom line don't stop contributing to retirement funds now, you'll only reduce your options down the road.
We have one rental house with no mortgage and a duplex and triplex where the rents from one side pay the whole mortgage.
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hokiefan4527
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Re: When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

exodusNH wrote: Wed Jun 23, 2021 6:18 pm
hokiefan4527 wrote: Wed Jun 23, 2021 11:53 am My husband and I are 27 years old. He is almost 28. I'm wondering how long we should continue to max out retirement contributions. Our ultimate goal is to "retire early" from W2 employment before age 40 and live on income from our rental properties and home repair business.

Here are the details:

Cash/Marketable Securities - $59,302
HSA - $22,439
Retirement (All Roth) - $219,875
UTMA for 6 month old - $8,261
Real Estate (incl. primary residence) - $792,000

Real Estate Debt - $448,000

Rental Cash Flow (monthly income less debt pmts) - $39,000

Assume Net Cash Flow is $25,000 after accounting for operating expenses/vacancy.

Still in beginning stages of the home repair business so I don't know how much income it will provide.

Looking at buying a duplex which will add net $5,000 to rental cash flow.

If we stopped contributing to retirement today, that would be around $2,000,000 in retirement accounts by the time we are 60. It's just hard to say how far $2,000,000 will go in 32 years with inflation, etc. The rentals are also part of our retirement plan. Either as cash flow or selling them.

If we wanted to be extreme, we could live in one of the rental properties, thus have no primary mortgage.

Living Expenses: If we didn't have a primary mortgage or child care costs, I would say we could live on a range of $25,000 - $60,000. The higher end being extremely extravagant living and possibly having a hard time even spending that much money.
I think you are vastly underestimating your expenses and overestimating market returns.

Child care is going to cost you $2,000/mo month unless you can do it yourself.

Health insurance is going to cost a fortune for a family of 3. The "affordable" plans will have huge deductibles and perhaps payment limits. In 2005, I had a bout of appendicitis. I was in the hospital for about 18 hours and had no complications. My total hospital bill was about $20,000 in 2005 dollars.

What happens with the next pandemic hits? The government has already set the precedent that they can prohibit you from evicting tenants for nonpayment. How would you survive in such a scenario? What if one of the units burns down? Will insurance make you whole, and if so, how long will that take? What if one of you gets into a car accident, leaving that person permanently disabled?

Real estate, like the market, doesn't always go up. I bought my house in 2005. Its value didn't recover from the crash of 2009 until now. The stock market, from 1999 to 2012 returned about 0%. $10,000 invested in 1999 was worth $5,400 in Feb 2009 (adjusted for inflation.)

When you sell your properties, on top of the normal real estate expenses, you will owe capital gains taxes. Further, assuming that you're depreciating your rental properties, you will also owe recapitalization taxes.
True, I haven't gone through a downturn yet. I was assuming an average 6.5% return.

Right now I pay about $750 per month for full time daycare for a 6 month old.
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hokiefan4527
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Re: When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

Jags4186 wrote: Thu Jun 24, 2021 8:05 am What is the goal of cutting back your retirement contributions? Is it to spend more money now or is it to pursue investment opportunities outside of retirement accounts? If the answer is to spend more now, consider every penny you spend more requires even more savings to support once you have no income. $2,000,000 in 32 years is going to have lost likely at least 50% of it's purchasing power...

It's very hard to go backwards in spending which is why many on this forum advocate having reasonable expenses. There have been a plethora of "how much car can I afford" posts lately... Once you start driving a $75k+ Mercedes, it's hard to go back to a Honda.
The question stemmed from my husband wanting to quit his w2 job to manage the rentals and pursue a home repair business. I am assuming we will not make as much money if he goes this route, thus having less to contribute toward retirement.
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Devil's Advocate
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Re: When Can We Stop Contributing to Retirement Funds

Post by Devil's Advocate »

I'm sorry, but what are you thinking? Why not continue to put money into tax advantaged accounts? With your numbers there is no reason not to use 401k, Roth, etc.
Keep stocking money away. Delay gratification. It has served me well.

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Re: When Can We Stop Contributing to Retirement Funds

Post by Devil's Advocate »

hokiefan4527 wrote: Thu Jun 24, 2021 10:01 am
Jags4186 wrote: Thu Jun 24, 2021 8:05 am What is the goal of cutting back your retirement contributions? Is it to spend more money now or is it to pursue investment opportunities outside of retirement accounts? If the answer is to spend more now, consider every penny you spend more requires even more savings to support once you have no income. $2,000,000 in 32 years is going to have lost likely at least 50% of it's purchasing power...

It's very hard to go backwards in spending which is why many on this forum advocate having reasonable expenses. There have been a plethora of "how much car can I afford" posts lately... Once you start driving a $75k+ Mercedes, it's hard to go back to a Honda.
The question stemmed from my husband wanting to quit his w2 job to manage the rentals and pursue a home repair business. I am assuming we will not make as much money if he goes this route, thus having less to contribute toward retirement.
You could still put money away into tax advantaged accounts without w2 income.

DA
SnowBog
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Re: When Can We Stop Contributing to Retirement Funds

Post by SnowBog »

hokiefan4527 wrote: Thu Jun 24, 2021 10:01 am
Jags4186 wrote: Thu Jun 24, 2021 8:05 am What is the goal of cutting back your retirement contributions? Is it to spend more money now or is it to pursue investment opportunities outside of retirement accounts? If the answer is to spend more now, consider every penny you spend more requires even more savings to support once you have no income. $2,000,000 in 32 years is going to have lost likely at least 50% of it's purchasing power...

It's very hard to go backwards in spending which is why many on this forum advocate having reasonable expenses. There have been a plethora of "how much car can I afford" posts lately... Once you start driving a $75k+ Mercedes, it's hard to go back to a Honda.
The question stemmed from my husband wanting to quit his w2 job to manage the rentals and pursue a home repair business. I am assuming we will not make as much money if he goes this route, thus having less to contribute toward retirement.
It sounds like what you are really asking is if "is it ok to temporarily cut back on savings to help launch/grow a new business?"

IMHO this is a significantly different question than originally asked. As you can see, the wisdom here is "do not stop saving" until you retire.

But I think the responses might be different if this is expected to be a temporary reduction - presumably of no more than 1-2 years max - to help cash flow while the new business is getting started.

I've got no personal experience with starting/running my own business, so I can't offer much... Other than from what I've seen - it seems like business owners (and self-employed) can potentially put a lot more into savings than most W2 earners. So conceptually, any short term reduction could be offset by higher future contributions. So at least to my uninformed mind, a temporary reduction to switch careers and grow a business seems more plausible than just stopping saving completely.
EnjoyIt
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Re: When Can We Stop Contributing to Retirement Funds

Post by EnjoyIt »

hokiefan4527 wrote: Thu Jun 24, 2021 10:01 am
Jags4186 wrote: Thu Jun 24, 2021 8:05 am What is the goal of cutting back your retirement contributions? Is it to spend more money now or is it to pursue investment opportunities outside of retirement accounts? If the answer is to spend more now, consider every penny you spend more requires even more savings to support once you have no income. $2,000,000 in 32 years is going to have lost likely at least 50% of it's purchasing power...

It's very hard to go backwards in spending which is why many on this forum advocate having reasonable expenses. There have been a plethora of "how much car can I afford" posts lately... Once you start driving a $75k+ Mercedes, it's hard to go back to a Honda.
The question stemmed from my husband wanting to quit his w2 job to manage the rentals and pursue a home repair business. I am assuming we will not make as much money if he goes this route, thus having less to contribute toward retirement.
This is a very different question than what you have originally asked. Based on the numbers I am seeing, you can probably cut back on income if you wanted to. It is possible that eventually it will lead to more income in the future as the business grows. But just because you aren't making W2 wages does not mean you don't have access to retirement accounts. Plus, who says you must use retirement accounts to save and invest? A regular taxable brokerage account is a great place to save money. Half my wealth is in a regular taxable brokerage account.
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Re: When Can We Stop Contributing to Retirement Funds

Post by celia »

alfaspider wrote: Wed Jun 23, 2021 12:29 pm Don't think of them as "retirement funds." Think of your accounts as tax advantaged space. The tax advantaged accounts are the best tax break going for middle to lower-upper class, regardless of what you want to do about retirement.
I disagree with your terminolgy. “Tax-advantaged accounts” refer to both tax-deferred and Roth accounts. There’s a huge tax difference between them. Tax-deferred means you will pay taxes on every dollar when it is withdrawn at an unknown (today) tax rate, which may be lower than your current marginal tax bracket or maybe not. Because these accounts should not be withdrawn from until age 59.5 or older (which is a “lifetime” away for the OP), they should be thought of as “retirement accounts”. OP should not even think of withdrawing from them until 59.5, else there won’t be as much left for their later years. (Pre-age-60 early retirement could be funded by savings in Taxable.)


As far as DH starting his own business, they can decide whether to do it part-time like on weekends. If he treats it like a real business, he can also have a Solo 401K, which can pump up their retirement accounts. Starting as a handyman, he could build up a customer base and reputation for a year or two before deciding if fulltime makes sense. Part of it will depend on where they live (urban vs rural) and they can see how the economy improves, at least as far as housing costs go.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
alfaspider
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Re: When Can We Stop Contributing to Retirement Funds

Post by alfaspider »

celia wrote: Thu Jun 24, 2021 3:10 pm
alfaspider wrote: Wed Jun 23, 2021 12:29 pm Don't think of them as "retirement funds." Think of your accounts as tax advantaged space. The tax advantaged accounts are the best tax break going for middle to lower-upper class, regardless of what you want to do about retirement.
I disagree with your terminolgy. “Tax-advantaged accounts” refer to both tax-deferred and Roth accounts. There’s a huge tax difference between them. Tax-deferred means you will pay taxes on every dollar when it is withdrawn at an unknown (today) tax rate, which may be lower than your current marginal tax bracket or maybe not. Because these accounts should not be withdrawn from until age 59.5 or older (which is a “lifetime” away for the OP), they should be thought of as “retirement accounts”. OP should not even think of withdrawing from them until 59.5, else there won’t be as much left for their later years. (Pre-age-60 early retirement could be funded by savings in Taxable.)
Nobody said tax advantaged accounts were a free lunch. But careful planning can maximize the tax benefits without crimping your style too much. For example, the OP could utilize 72(t) distributions to access tax-advantaged accounts without penalty before 59.5. Also, don't forget HSA accounts, which can be used for medical expenses without penalty at any time.
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retired@50
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Re: When Can We Stop Contributing to Retirement Funds

Post by retired@50 »

hokiefan4527 wrote: Thu Jun 24, 2021 10:01 am The question stemmed from my husband wanting to quit his w2 job to manage the rentals and pursue a home repair business. I am assuming we will not make as much money if he goes this route, thus having less to contribute toward retirement.
Is the home repair business really a business yet?

In other words, is he doing side jobs on the weekends or evenings for money?
If he is doing this, is he keeping busy? --- Too many customers, not enough time?

If he intends to leave the w2 job to try and launch a business that has had zero customers to date, that's risky. If he's already working 20 hours a week on evenings and weekends in the home repair business, there's a much better chance he could make a go of it...

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: When Can We Stop Contributing to Retirement Funds

Post by celia »

alfaspider wrote: Thu Jun 24, 2021 4:02 pm Nobody said tax advantaged accounts were a free lunch. But careful planning can maximize the tax benefits without crimping your style too much. For example, the OP could utilize 72(t) distributions to access tax-advantaged accounts without penalty before 59.5.
At age 27, and probably for the next 10 years, they should keep contributing to Roth. As they become more experienced in their careers, their wages will tend to increase more than inflation. As their income increases, their tax brackets would also increase, making tax-deferred preferable then. So, just because of their age, if nothing else, they were smart to start with Roths. That will give these accounts lots of time to grow. (I don’t know if they will hit $2M in Roths at their current savings rate and growth rate, but the more they contribute over time, the more likely to meet that target.)
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Devil's Advocate
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Re: When Can We Stop Contributing to Retirement Funds

Post by Devil's Advocate »

celia wrote: Thu Jun 24, 2021 5:06 pm
alfaspider wrote: Thu Jun 24, 2021 4:02 pm Nobody said tax advantaged accounts were a free lunch. But careful planning can maximize the tax benefits without crimping your style too much. For example, the OP could utilize 72(t) distributions to access tax-advantaged accounts without penalty before 59.5.
At age 27, and probably for the next 10 years, they should keep contributing to Roth. As they become more experienced in their careers, their wages will tend to increase more than inflation. As their income increases, their tax brackets would also increase, making tax-deferred preferable then. So, just because of their age, if nothing else, they were smart to start with Roths. That will give these accounts lots of time to grow. (I don’t know if they will hit $2M in Roths at their current savings rate and growth rate, but the more they contribute over time, the more likely to meet that target.)
What would be smarter would be to contribute to Roth and 401k.

DA
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Re: When Can We Stop Contributing to Retirement Funds

Post by BlueMoonXD »

Agree with others that it's a bit unclear what the discussion here is about.

With respect to the original framing of the question, I think there is never a good reason to stop contributing to 401k/IRA, even if one is planning for early retirement. One of the primary ways in which people fund early retirement is through staggered 401k - Roth IRA conversions, which then become eligible for no-penalty withdrawal as contributions in 5 years (see Roth IRA Ladder). Even if all of your tax-advantaged investments were in Roth accounts already, you can always withdraw the contributions without penalty. So there's really no advantage to having your savings in a taxable investment account.

It seems the discussion is more about whether you are prepared for retirement with just your current savings. This is dependent on a lot of factors specific to your situation, but it seems to me like the main question is whether you will be cash flow positive or negative after your husband leaves his W2 job. If you are exactly cash flow neutral consistently until retirement, then I guess your original question is sort of a reasonable one, but it seems more likely to me that you will either be able to continue to save (perhaps a smaller amount than currently), or depleting your savings. If you will still be able to continue saving at some rate, then I think it considerably lowers the risk of your husband leaving his job, especially if he can easily return to a traditional job if your financial planning changes.
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Re: When Can We Stop Contributing to Retirement Funds

Post by hokiefan4527 »

Devil's Advocate wrote: Thu Jun 24, 2021 6:26 pm
celia wrote: Thu Jun 24, 2021 5:06 pm
alfaspider wrote: Thu Jun 24, 2021 4:02 pm Nobody said tax advantaged accounts were a free lunch. But careful planning can maximize the tax benefits without crimping your style too much. For example, the OP could utilize 72(t) distributions to access tax-advantaged accounts without penalty before 59.5.
At age 27, and probably for the next 10 years, they should keep contributing to Roth. As they become more experienced in their careers, their wages will tend to increase more than inflation. As their income increases, their tax brackets would also increase, making tax-deferred preferable then. So, just because of their age, if nothing else, they were smart to start with Roths. That will give these accounts lots of time to grow. (I don’t know if they will hit $2M in Roths at their current savings rate and growth rate, but the more they contribute over time, the more likely to meet that target.)
What would be smarter would be to contribute to Roth and 401k.

DA
our 401k's are roth 401k's.
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