Not everyone can afford to max out their retirement accounts every year. Some years, I consider myself blessed if I don't have to tap much retirement account to pay bills or cover unexpected expenses. According to a recent U.S. News & World Report article, people who max out their retirement accounts are often able to catch tax breaks. I'm more concerned about my taxes when I'm older. If it's a year when I don't have enough money to max out my retirement accounts, I probably won't owe as much in taxes anyway. It goes without saying that contributing more to retirement accounts will most likely result in fatter dividend checks in retirement. Since I can't always max out my retirement accounts, I have come up with some alternatives so I don't fall too far behind in terms of being financially prepared for retirement.
Considering our home a nest egg
We consider our home to be an investment that is just as important to our retirement as 401(k) and Roth IRA plans. When we refinanced our home to a lower interest rate, we saved thousands of dollars in interest. Whether it's interest saved with a lower rate or interest gained in the stock market, the end result is more money for our retirement. I don't always have the $5,500 to save into my Roth IRA, but I can still round up on my mortgage payment.
Converting my former 401(k)
If I allowed my employer to deduct $729 from my twice per month paycheck, I'd be able to max out my 401(k). However, it would be at the expense of eating. I would barely have anything left to live on. Last year, I converted my old 401(k) plan to a Rollover IRA. Now, instead of maxing out my current 401(k) plan, I simply pay the taxes every year on converting money from a Rollover IRA to a Roth IRA. When I'm older, I won't have to pay taxes on the interest earned over the years. I'm still able to dollar-cost-average into a commission-free exchange-traded fund (ETFS) by investing just $500 at a time.
Getting the company match
Since I don't receive a company match from my employer, I don't worry about contributing at all to a regular 401(k). However, my husband makes sure he receives all the matching funds that his employer offers. After that, we go back to my 401(k) since I'm able to invest in a Roth 401(k). When we are retired, we will have to pay taxes on the money we take out of his regular 401(k) but that will be balanced by the tax-free withdrawals from my Roth 401(k).
Depending on dividends
Because I saved diligently for retirement when I was younger, I was able to build up a nest egg that continues to grow even if I don't contribute to it. The key has been to invest in dividend-paying mutual funds, individual stocks and ETFS. The dividends seem to counteract any steep or sudden decline in the stock market. Since I used the dollar-cost-average approach for more than a decade, it would take more than one stock market crash to devastate my account.
For people who can afford to contribute $17,500 into a 401(k) and $5,500 into a Roth IRA, it's obviously beneficial to do so. I know one woman who put her entire paycheck into retirement savings because she could afford to live on just her husband's income. My husband and I have other pressing financial priorities such as college for our kids. Channeling all of our money into retirement just isn't practical. Fortunately, there are other options for those of us trying to retire with more than a few nickels in our pockets.
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