Is it ok to stop contributing to retirement accounts?

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TTGO808
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Is it ok to stop contributing to retirement accounts?

Post by TTGO808 » Wed Jan 18, 2017 12:50 am

Hello!
I’m having a third child and would like to stay home for the next several years after having worked and maed out my retirement account for several years. We can live on my partner’s salary, but it would mean that we would probably stop contributing to our retirement funds. We currently have $600k in 401ks and my partner plans on retiring a 62 with a pension that that should replace 70-80% of his current income. We have term life insurance in case something happens. When I run the numbers on different calculators, it sounds feasible to stop contributing. Our home is paid off and we have no outstanding debt.

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ofcmetz
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Re: Is it ok to stop contributing to retirement accounts?

Post by ofcmetz » Wed Jan 18, 2017 6:23 am

Does he get a match on his retirement contributions? If so at least put in enough to get this. If it were me I'd contribute less but still put in a little. As raises come in then raise it up what you save with each raise. Regardless of your situation if you can live on less than what you make you are doing better than the one who lives on what he/ she makes.
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Rodc
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Re: Is it ok to stop contributing to retirement accounts?

Post by Rodc » Wed Jan 18, 2017 6:32 am

Life is all about trade offs. Security now vs security later. Consumption now vs later. Time now vs time later.

Many people have made the choice you are considering in less favorable situations.

If his pension is really something like 80% of last 3 year's salary (ie future salary not current salary) that would be better. If his job is secure (like high school English teacher) that is better still. If you can somehow keep your skills and connections current that would be good.

Finding a way to make some retirement contributions would be good, but you do have a very good start especially given the pension.

How do you plan on saving for college or is no college funding part of the trade off?

But it would certainly not be a huge gamble to become a stay at home parent.

Best of luck.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

Lafder
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Re: Is it ok to stop contributing to retirement accounts?

Post by Lafder » Wed Jan 18, 2017 7:39 am

Look up spousal IRA in case you can still get a bit of tax advantage as the spouse.

Great to a paid off house already!

lafder

Loik098
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Re: Is it ok to stop contributing to retirement accounts?

Post by Loik098 » Wed Jan 18, 2017 11:50 am

TTGO808 wrote:We currently have $600k in 401ks and my partner plans on retiring a 62 with a pension that that should replace 70-80% of his current income.
Not sure, but it sounds like you have a ways to go until retirement. Are his pension assets vested? Is he a government worker, and if so, how good is the state you live in at protecting his pension? What is your outlook if his pension plan is terminated?

It might be wise to not only conduct an annual check-up of the pension plan, but to save what you can now in the event that benefits are cut later on. A very high percentage of pension plans are underfunded.

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Watty
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Re: Is it ok to stop contributing to retirement accounts?

Post by Watty » Wed Jan 18, 2017 12:13 pm

ofcmetz wrote:Does he get a match on his retirement contributions? If so at least put in enough to get this. If it were me I'd contribute less but still put in a little. As raises come in then raise it up what you save with each raise. Regardless of your situation if you can live on less than what you make you are doing better than the one who lives on what he/ she makes.
+1

When my son was in college we were doing OK with the retirement savings so that I cut back my 401k contributions to just be enough to get the employers match.

With $600K in retirement savings,a paid off house, and probably 20+ years until retirement you are doing great. :sharebeer

You should also look to see how far you are from the next lower tax bracket. For example if you are just $2000 into the 25% tax bracket then you might want to make a $2,000 contribution.

There are LOTS of pros and cons but you might want to consider doing some Roth conversions or Roth contributions if you have any space in the 15% or lower tax brackets. That being a good choice or not really depends on the details so there is no one right answer to that.
Last edited by Watty on Wed Jan 18, 2017 12:24 pm, edited 1 time in total.

evilityb
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Re: Is it ok to stop contributing to retirement accounts?

Post by evilityb » Wed Jan 18, 2017 12:22 pm

1) How old are you and your partner?

2) Any likelihood you will return to work in a few years?

3) You say "partner" -- are you two married? If not, make sure you are entitled to receive the pension should something happen to him and that you are legally protected should you split up at some point.
Make sure the fortune that you seek is the fortune you need - Ben Harper

TTGO808
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Re: Is it ok to stop contributing to retirement accounts?

Post by TTGO808 » Thu Jan 19, 2017 7:39 pm

We're married, I just say partner out of habit - workplace norms. My husband is a CA public school teacher, is vested in CALSTRs and has 20 more years until he retires at 62. There is no 403b match for him, but any leftover funds could be invested in a ROTH/spousal ROTH.

I work in HR and could return to work when my child is school-aged, and to help with college costs for our 8 and 10 years old. We have not saved for college for the kids because we've been maxing out the retirement accounts and were planning to pay as we go.

It's calculated, but we figured the kids would qualify for more need-based financial aid if we had little money saved outside of retirement and home equity. Does this seem like a reasonable plan? We're prepared to have them take out loans (hopefully subsidized) so that they don't take their education for granted.

Rodc
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Re: Is it ok to stop contributing to retirement accounts?

Post by Rodc » Thu Jan 19, 2017 7:51 pm

TTGO808 wrote:We're married, I just say partner out of habit - workplace norms. My husband is a CA public school teacher, is vested in CALSTRs and has 20 more years until he retires at 62. There is no 403b match for him, but any leftover funds could be invested in a ROTH/spousal ROTH.

I work in HR and could return to work when my child is school-aged, and to help with college costs for our 8 and 10 years old. We have not saved for college for the kids because we've been maxing out the retirement accounts and were planning to pay as we go.

It's calculated, but we figured the kids would qualify for more need-based financial aid if we had little money saved outside of retirement and home equity. Does this seem like a reasonable plan? We're prepared to have them take out loans (hopefully subsidized) so that they don't take their education for granted.
A lot of teachers work until 62. Or later. A lot get burned out and do not make it that long. Pensions will be under pressure and terms can be changed; 20 years is a long time to count on things not changing.

If you do not save for college you might or might not get a little more aid, though that aid might simply be loans. Counting on college funding to work the same way in 10 years as today is a perhaps somewhat wild bet. I decided to save for college for the kids - it may or may not turn out to be optimal, will know in 6 years. But I do know my kids will go to college debt free. It was more important to me to guarantee that than to try to optimize the system and hope I could come up with the money later. Now you could take out a home equity loan and pay it off later from your retirement accounts, but that is almost certainly not optimal - though could save you if you bet wrong - so perhaps not a horrible bet.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.

surfstar
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Re: Is it ok to stop contributing to retirement accounts?

Post by surfstar » Thu Jan 19, 2017 7:52 pm

Yes, it sounds like its easily affordable for you to do so. This forum is very fiscally conservative, so you may get other opinions, but you guys seem well set on future needs. A paid off house in CA is well done at that age!

Feel free to stay [in your paid off] home and take care of the new one!

and remember, they can borrow for college, you can't borrow for retirement (focus on your retirement first, their college second) heck in 15 years college might be all online and nearly free - we don't know the future

KlangFool
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Re: Is it ok to stop contributing to retirement accounts?

Post by KlangFool » Thu Jan 19, 2017 8:19 pm

TTGO808 wrote:Hello!
I’m having a third child and would like to stay home for the next several years after having worked and maed out my retirement account for several years. We can live on my partner’s salary, but it would mean that we would probably stop contributing to our retirement funds. We currently have $600k in 401ks and my partner plans on retiring a 62 with a pension that that should replace 70-80% of his current income. We have term life insurance in case something happens. When I run the numbers on different calculators, it sounds feasible to stop contributing. Our home is paid off and we have no outstanding debt.
TTGO808,

401K is not a "retirement" account. It is a tax management tool. It let you pay tax later. So, if you can pay less tax later by contributing to 401K plan why won't you do it? Unless you are one of those people that like to pay more tax instead of spending your own money.

The answer to your question has nothing to do with whether your retirement is fully funded. It has to do with whether you get to spend more of your money instead of paying more tax.

What is your current marginal tax rate? What will be your retirement marginal tax rate? That information is what you needed to make the decision.

<< We currently have $600k in 401ks and my partner plans on retiring a 62 with a pension that that should replace 70-80% of his current income. >>

How long before your partner is 62? How much is your annual expense? Are you going to pay for your children's college education? Where is the money going to come from? Are your children going to college before or after your partner retire?

I am not quite sure that you are all set in term of your financial wealth. Especially, in term of amount of money that you need to finance your children's college education.

KlangFool

ksleo
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Re: Is it ok to stop contributing to retirement accounts?

Post by ksleo » Thu Jan 19, 2017 9:49 pm

It sounds as though you can afford to make the lifestyle change. The 600,000 compounded over 20 years ought to do very well.

The only consideration I would bring up is that by contributing to workplace retirement plans you can lower your AGI and potentially become eligible for tax credits, so I would examine those situations before completely ceasing retirement contributions.
Actions have consequences.

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