Liquidity vs. Retirement Savings in 2019

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Topic Author
Bwlonge
Posts: 155
Joined: Wed Nov 22, 2017 6:36 am

Liquidity vs. Retirement Savings in 2019

Post by Bwlonge » Thu Jan 10, 2019 3:03 pm

I am turning 32 for 2019 and I have 2 financial goals right now: max out my tax deferred retirement savings space and have 1 year's worth of expenses liquid. I can achieve one or the other in 2019.

If I put no money into retirement, I will achieve 1 year livings expenses in liquid savings in 1 year from this time.
If I max out my retirement, I would make 35% progress on my liquid saving goal, pushing it achievement to 3 years instead of 1.
I could, of course, adjust to be in the middle, saving some for retirement, pushing liquid goal to 2 years.

Going liquid has more benefit to having a large cushion (I also own-occupy a duplex, so added cushion required), but also readies me for opportunity requiring down payment or up front investment. For example, I may want to buy a house or investment property. I couldn't do that comfortably without at the very least 1 year's worth of living expenses at the time.

My job is relatively safe, but I'm just feeling more aware of the fragility of funding decisions under tense economic times. I also have 1.5 masters degrees, so that saves me a bit of worry about employment, for now.

crazycatman
Posts: 42
Joined: Wed Feb 14, 2018 11:23 pm

Re: Liquidity vs. Retirement Savings in 2019

Post by crazycatman » Thu Jan 10, 2019 3:04 pm

Bwlonge wrote:
Thu Jan 10, 2019 3:03 pm
I am turning 32 for 2019 and I have 2 financial goals right now: max out my tax deferred retirement savings space and have 1 year's worth of expenses liquid. I can achieve one or the other in 2019.

If I put no money into retirement, I will achieve 1 year livings expenses in liquid savings in 1 year from this time.
If I max out my retirement, I would make 35% progress on my liquid saving goal, pushing it achievement to 3 years instead of 1.
I could, of course, adjust to be in the middle, saving some for retirement, pushing liquid goal to 2 years.

Going liquid has more benefit to having a large cushion (I also own-occupy a duplex, so added cushion required), but also readies me for opportunity requiring down payment or up front investment. For example, I may want to buy a house or investment property. I couldn't do that comfortably without at the very least 1 year's worth of living expenses at the time.

My job is relatively safe, but I'm just feeling more aware of the fragility of funding decisions under tense economic times. I also have 1.5 masters degrees, so that saves me a bit of worry about employment, for now.
I think getting that one year cushion is going to do more for your peace of mind than maxing out retirement. Once that year is saved up, ramp up the retirement.

delamer
Posts: 6908
Joined: Tue Feb 08, 2011 6:13 pm

Re: Liquidity vs. Retirement Savings in 2019

Post by delamer » Thu Jan 10, 2019 3:06 pm

Are you getting an employer match for any of your tax-deferred contributions?

Don’t give up the match under any circumstances.

bloom2708
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Location: Fargo, ND

Re: Liquidity vs. Retirement Savings in 2019

Post by bloom2708 » Thu Jan 10, 2019 3:11 pm

What is your top/marginal tax rate? 22 or 24%?

I would shoot for 3-6 months cash. No reason to overdue it and pass up tax advantaged space.

If you put $19,000 in your pre-tax 401k/403b that nets you a tax deferral of $4,200+. More in your check. Do you get any match? Those are free dollars to not pass up.

Your pre-tax 401k/403b/TSP and Roth IRA are use it or lose it. $4,200 would get you 2/3 of your Roth IRA for 2019.

If you want to "take a year off" and pay the full tax to build up cash, that is probably fine. Saving more early powers your stash 20, 30 years down the line. Tough to skip years when you really don't have to. Even if it took you 2 or 3 years to build up to 9 months expenses in cash, that would be fine. You can always adjust mid-stream if something happened.
"A Stoic believes they don’t control the world around them, only how they respond--and that they must always respond with courage, temperance, wisdom, and justice." --Daily Stoic

Topic Author
Bwlonge
Posts: 155
Joined: Wed Nov 22, 2017 6:36 am

Re: Liquidity vs. Retirement Savings in 2019

Post by Bwlonge » Thu Jan 10, 2019 3:21 pm

bloom2708 wrote:
Thu Jan 10, 2019 3:11 pm
What is your top/marginal tax rate? 22 or 24%?

I would shoot for 3-6 months cash. No reason to overdue it and pass up tax advantaged space.

If you put $19,000 in your pre-tax 401k/403b that nets you a tax deferral of $4,200+. More in your check. Do you get any match? Those are free dollars to not pass up.

Your pre-tax 401k/403b/TSP and Roth IRA are use it or lose it. $4,200 would get you 2/3 of your Roth IRA for 2019.

If you want to "take a year off" and pay the full tax to build up cash, that is probably fine. Saving more early powers your stash 20, 30 years down the line. Tough to skip years when you really don't have to. Even if it took you 2 or 3 years to build up to 9 months expenses in cash, that would be fine. You can always adjust mid-stream if something happened.

Good point about the midstream adjustment, though its like a slowly turning boat, there would be an arc. If [stuff --admin LadyGeek] really hit the fan though, could also start floating on 0% credit cards while the adjustment comes in.

No employer match.

This also doesn't take into account any extra money I come by either through my current variable night job (up to 5k pretax/year) or credit/checking churning (variable up for a few k). So if I could hustle, I could both max retirement and make about 60% progress to that liquid goal.

smectym
Posts: 298
Joined: Thu May 26, 2011 5:07 pm

Re: Liquidity vs. Retirement Savings in 2019

Post by smectym » Thu Jan 10, 2019 6:31 pm

Bwlonge, sometimes a gradualist approach is better than sudden shifts in strategy. Agreed, liquidity is important. But perhaps be content to gradually approach your liquidity goal while still maxing out your retirement plan. You can never go back later and "fill in the blank" for a year when you under-contributed to the IRA or 401(k).

Smectym

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