Maxing out my retirement account is a fantastic notion. But it's also wishful thinking, an unrealistic hope and a castle-in-the-sky fantasy depending on the preferred synonym for "pipe dream." I just don't understand why so many financial experts recommend people max out their retirement accounts. I don't personally know anyone who has that kind of money. I know I will never be able to afford to contribute the maximum amount to my 401(k) plan at work. Maybe I could max out my Roth IRA account, but it's not likely while I have a son in college. Also, the government periodically raises the maximum amounts that can be contributed into retirement accounts. Although that's great, it makes it even more unrealistic for me to reach that pipe dream of maxing out my retirement accounts. I don't think I should feel like a financial failure just because I have other priorities besides retirement. For example, I'd like to eat.
Looking at the 401(k) numbers
For my 401(k), the IRS says in 2013 that I can contribute up to $17,500. Some people barely earn that much money working at a full-time job. I know one senior citizen woman who told me she was able to max out her 401(k) on an income of just $12,000 a year because she lived on her husband's income. Most of us live in dual-income households that require both incomes in order to make it.
Contributing the max to a Roth
According to a recent article by Betterment.com, the maximum a person can contribute to a traditional IRA and Roth IRA is $5,500. Since I get paid every two weeks, I receive 26 paychecks a year. I'd have to put aside about $211 every paycheck in order to max out my Roth IRA. Although I could afford to do that when my children are financially independent, it's not realistic at this stage in our lives.
Making catch-up contributions
The best solution for me would be to make catch-up contributions when I'm older. The IRS says people age 50 or older can make a catch-up contribution of $5,500 toward their 401(k) plans. In another 10 years, it's still unlikely I'll have that much money to put into a 401(k). The catch-up amount for the Roth IRA at this time is $1,000 for people who are 50 or older. That means I'd be saving $250 out of every paycheck for my Roth IRA.
Finding the extra money
The only way my husband and I could come even close to maxing out our retirement accounts is if we paid off our mortgage early. In another 10 years, we will not have a mortgage anymore. We would only have to pay the taxes and insurance, saving us about $700 a month. With that extra money, we could max out each of our Roth IRA accounts and still have about $200 a month extra to put toward our 401(k) accounts. I know every "expert" out there thinks I should save for retirement instead of paying off my home, but I can't live in my Roth IRA.
People who can max out their retirement accounts aren't just disciplined people who live below their means. They are also high earners that probably don't miss that $23,000 a year as much as I would miss it. Just thinking about it gives me hives.
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