Why I’m Temporarily Halting My Retirement Contributions
It almost pains me to write this post because I’ve always been the one to gloat about my retirement savings. Granted, being only 26, I don’t have much of a nest egg established just yet, but from my very first day of professional employment, I’ve contributed heavily to my 401Ks and more recently, my Roth IRA as well. I’m a very firm believer in the “save early and save often” mantra because I know, like many of you reading this, that consistent and disciplined investing is absolutely essential to a healthy retirement. I know that I shouldn’t stop investing in my retirement accounts.
So What Changed?
As so many of the political pundits like to put it, “It’s the economy, stupid.” Trust me, I fully realize that the market is on sale right now and if there’s any time to be piling up on index funds, mutual funds, ETFs, and even stocks (Berkshire Hathaway is awful tempting right now), now’s the time to do it. The issue is that I feel it would be irresponsible of me to ignore the following, more immediate concerns:
- I need to bolster my emergency fund. After I deposit a sizable check (freelancing income) tomorrow afternoon, I’m only going to have approximately $6,800 in my emergency fund. While that would most likely get me through a couple months worth of expenses, I’m not entirely comfortable with having less than $10,000 in cash immediately accessible - especially considering the multiple waves of layoffs at my company over the last few months. Most of the money saved from no longer contributing to my retirement accounts is going straight into my emergency fund.
- My 2008 tax liability is questionable. Speaking of freelancing, I’m embarrassed to admit that I don’t know what my tax liability for this year will be. I’ve been pretty diligent in stashing half of what I earn in my side jobs, but I could definitely stand to brush up on my tax knowledge a little. By my guesstimate, I’m hoping that my bill will come in at around $6,000 or less. If I’m off by more than $1,000 or so, I’ll be utilizing the services of a CPA for my freelancing and consulting work next year.
- I still owe over $9,000 on my car. While I could technically pay the minimum payments on this loan and forget about it for the next couple years, I’d rather pay nearly double ($550) and get the thing paid off. It’s a relatively new car (2005) with only 44,000 miles on it, so my thought is that I pay it off in 2009, drive it until it falls apart, and redirect the money I was using for those payments back into my retirement accounts.
- The market is just too volatile in its current state. Like I said, I’m young and fortunate enough to have a pretty high risk tolerance, but I’m also a realist. I could easily be laid off tomorrow without warning. Having the bulk of my money, at this stage in the game, tied up in retirement accounts just doesn’t sit well with me. Besides, by “investing” in my emergency fund and vehicle loan, I’m earning a guaranteed 3% and 5% respectively - beats the heck out of losing 40%, al la the S&P 500.
Your Chance To Weigh In
Have I lost my mind? Surely I’m not the only one who who’s made significant changes to their retirement contributions in light of the financial crisis and stock market turmoil. As a sanity check, I’d appreciate it if you guys would set me straight by taking a second to answer the poll below and/or leave a comment.
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3 comments
Jimmy on November 24th, 2008
Thanks Patrick - I’m glad to know that at least one person thinks I haven’t totally lost it. I actually envy the fact that you’re able to invest in this depressed market - you’ll make out like a bandit in the long run.
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Patrick on November 23rd, 2008
I’m a big advocate of continuing investments (and continue to put more money in even as the market continues to drop). But given your situation it makes perfect sense to hold off for awhile. Your emergency fund and other obligations are more important at the moment.