Financial planning experts - do you max out on your retirement contributions each yr?

[citymama]

Do you try and max out on your elective retirement contributions each year? My DH really pushes me to do this, and while I've always been a big saver (probably better than he is), I do pause at the idea of each of us contributing the max 403 b pre-tax amount ($16.5K) and then also contributing to our IRAs and the kids' college funds. No wonder we are having a hard time finding a house we can afford to buy! When we do buy, we are going to end up borrowing some from our retirement accounts and repaying ourselves.

For the financial planners among us, I'm wondering what makes the most sense financially, since 403 b contributions in particular are pre-tax. Thanks for any advice!

[jjordan]

I'm not personally an expert, but I can tell you what one "expert" (Dave Ramsey) says. He has 7 "baby steps" to accomplish in order:
1. save a $1000 emergency fund
2. eliminate debt (excluding house)
3. save 3-6 months' expenses
4. invest 15% of household income in retirement accounts
5. save for children's college
6. pay off house early
7. build wealth & give

I think that if you're saving for a house (for example), you would start on that after baby step #4.

[wellyes]

I'm no expert but here's what we do:
IRAs - max
401k - to match amount; use to do max, but have cut back
529s - we open with a set amount per kid, but then only grandparent contributions for now (while the kids are little & I'm working part time)

So we prioritize retirement over college savings at this point.

[belovedgandp]

The 15% is my general goal. We do a smidge more. 10% to DH's 401k to maximize the match and then our Roth IRA.

If you are eligible for a Roth, splitting retirement assets into both pre-tax and post-tax dollars makes sense; different pools of money when in retirement plus more investment options here and now than an employer provided fund.

[georgiegirl]

Yes, but DH makes a very nice salary, so it isn't as if we'd need the $$$ elsewhere.

[happymomma]

I'm not personally an expert, but I can tell you what one "expert" (Dave Ramsey) says. He has 7 "baby steps" to accomplish in order:
1. save a $1000 emergency fund
2. eliminate debt (excluding house)
3. save 3-6 months' expenses
4. invest 15% of household income in retirement accounts
5. save for children's college
6. pay off house early
7. build wealth & give

I think that if you're saving for a house (for example), you would start on that after baby step #4.

That is sound advice. When I was a SAHM, we would max out DH's 401k and I would put the maximum in a Roth IRA for me. Since going back to work, I've begun to max out on my 403b so that I can catch up on our retirement. We put a small amount once a month into the kids college fund. But we only did that once I started working. Prior to that we were mostly maximizing on our savings.

[marge234]

We max out. I don't have any of my own advice on this stuff, but I'm sure the savvy mamas on here will give good feedback. When I was putting my plans together I relied on Suze Orman. She's a big advocate of ensuring your own financial security, retirement, etc... before paying for college. Her reasoning made sense to me. So, given the deduction on interest payments, and that you need a place to live, I'd put a house ahead (way ahead) of college savings.

FWIW, Orman is very opposed to borrowing against retirement accounts--excerpt below.

Also, never ever borrow against your 401k plan because you will pay double taxation on the money you borrow. Because you don't pay taxes on the money you put into a 401k, when you pay back the loan (which you must do within five years, or 15 years if used to buy a home), you pay it back with money you have paid taxes on. Then, when you retire and take the money out again, you end up paying taxes on it a second time. And that isn't even considering the penalties you have to pay if you change jobs/quit/lose your job, in which case the money is due immediately and subject to taxes and a 10% penalty..

Whole article is here.
http://today.msnbc.msn.com/id/21793722

GL!

[Melbel]

Given the current climate, I think a good argument could be made to save enough for a 20% down payment on a house, before maxing retirement for the following reasons:

1. Housing prices are incredibly low now.
2. Interest rates are at all time lows.
3. You can deduct mortgage interest on taxes.

Considering that housing prices are likely to fall in the next 6 to 12 months, IMO, I would make it a priority to try and buy in that time frame. I agree with the PP that it is risky to take loans out on retirement savings.

ETA: We consider our house as one form of retirement savings. Once the kids are all out of the house, we plan to downsize and put the extra equity toward retirement.

[AnnieW625]

I'm not personally an expert, but I can tell you what one "expert" (Dave Ramsey) says. He has 7 "baby steps" to accomplish in order:
1. save a $1000 emergency fund
2. eliminate debt (excluding house)
3. save 3-6 months' expenses
4. invest 15% of household income in retirement accounts
5. save for children's college
6. pay off house early
7. build wealth & give

I think that if you're saving for a house (for example), you would start on that after baby step #4.

Doing all of this is next to impossible esp. unless you live in a really reasonable COL area.

2. we have no debt except the house, and a car payment; everything else gets paid off monthly

4. We don't max out our retirement plans; it's just not possible. I do contribute about 5% each of our salaries to our 457/401K plans through our work. Our employer doesn't match our contributions, but we do have pension plans.

5. we have a 529 for DD1, and are getting one set up for DD2 soon.

7. we donate to our church, and the Jr. League I am a member of, but the contribution is only about $500 per year.

I feel very content in what we are able to do, but I would like to build up our savings again.

[niccig]

We do on DH's 401K. We're looking into setting up another account for me, it won't get fully funded until I'm back working full-time. I do have a retirement account in Australia that was funded ever since I was 16 - legal requirement to fund it from any job (it's sort of like social security but you get limited options on how it's invested), so there's a decent amount in it. College is funded, but again, not as much as I would like. The last 2 years we saved a lot in case DH gets laid off - it's more than we probably need in an emergency fund, but we want to keep it until work settles. Eventually, we'll put it into retirement/college/kitchen renovation/pay off car loan early if we feel we don't need it all as emergency fund.

When I'm back working full-time, then we'll save all of that and it will go towards retirement/college and extra savings. We're used to one income now, and our accountant said he'll skin us alive if we use any money I make to increase lifestyle. He knows my DH is a bit of a spender, who's had to reform some of his ways.

I'm waiting on getting one of Elizabeth Warren's books called All Your Worth http://www.amazon.com/All-Your-Worth-Ultimate-Lifetime/dp/074326987X
She advocates a budget of take home pay of 50% must have expenses (house/food/utilities etc), 20% savings (included debt repayment like credit cards, as once paid off then you save that) and 30% wants. She argues that must haves over 65% put you in danger zone of financial crisis - and you need to reduce those. I've only read reviews, still waiting on it at library, but I like the idea of having a % guide so we can see if the purchase is something we can really afford. I think the 50/30/20 is a good goal, but like Annie we live in high COL so I'm not sure if we can do it or not. We're stuck with some of our Must-Haves like our house. I know we have a lot of things in the Wants category that we could work on. I think if we get close, that will be pretty good, and it will help to really look at the break down of our expenses and revise our expectations. I'm more frugal than DH and it does cause issues, so I think having a percentage as a guide will help me loosen up as I'll know the purchase won't eat into the savings %

We've also decided that our current home is our home until retirement, but once DH retires, we're moving to much cheaper COL. Hopefully that will help too. I would like to pay for DS's college, but not at expense of our retirement. You can get loans for college, but you can't get loans for retirement.

OP, as for buying a home - really look at what you can afford and long term. While I am glad we bought, we are stuck and honestly we should have rented longer and saved up more. We would be in a better position if we had waited, so I wouldn't rush into buying now if it's not financially feasible. If you can, then yes house prices are low, but don't put yourself in a bind.

[pb&j]

I'd funnel some of the kids' college money to the house down payment fund if I were in your shoes. And I'd possibly divert some of the retirement savings as well - borrowing from your retirement fund is risky and you'd be better off "borrowing" that money before it ever got to the retirement fund.

We don't quite max out retirement contributions, but we're pretty close. We aren't saving much for the kids' college at this point, and we already own a home in which we have a lot of equity.