Retirement Planning and Saving

We have massive credit card debt! We also have a 401K loan. We also have a solar loan. We also have (an almost paid off) car loan. We owe nearly $20,000 in credit card debt, about $6500 more to our 401K loan, and about $22,000 for our solar loan, not to mention our mortgage. But, despite all this debt, we still contribute to our retirements.

Why?

Because we still have to plan for our future. We don’t want to be a burden to our kids, or financially beholden to anybody in our “golden years” like we are now.

As a teacher in California, 10+% of my pay is automatically deducted from my paycheck before I ever see it. I have also set up a 403b where another $900 a month, or about 12% of my paycheck, comes out automatically. (One of my 2020 goals is actually to raise this to $1000.) $900 is nowhere near the maximum $19,500 per year allowed by law, but it is a start. Eventually, I would like to max out my contributions.

Looking at the numbers, I contribute over 20% of my pre-tax income to retirement. My district contributes some monies on my behalf also.

The Husband has no pension, or automatic deductions, like I do. However, his work does offer a 401K and a small match. When he started this job, we set up a 401K. Currently, he contributes 13% of his pre-tax pay to retirement, or about $13,600. His company offers s a 3% match, so another $3100. His company also gives 6% profit sharing at the beginning of every year, which is another $6300.

Technically speaking and including employer contributions, The Husband contributes 22% of his income to retirement. Generally, in March, The Husband has his review and receives a raise. Of course, raises are not guaranteed. Should he receive a raise this year, it will all go towards retirement, eventually. Assuming he gets a 3% raise (which is typical), we would immediately increase his 401K contribution by 2%, bringing it up to 15%. Then in August, on his work-aversary, it would automatically increase by an additional 1%. His total contributions would be 16%, or $16,800. The hope then would be that he would earn another raise next year of 3% and would then be maxed out for his contributions. We would then start working on increasing my contributions to eventually get them maxed out.

Experts suggest contributing 15%. Combined, we are looking at about 21% of our income going towards retirement. Of course, retirement income is all speculation for us at this point, but we are hopeful that we will reach retirement age and we hope to be comfortable in our declining years.

Obviously, our future numbers are all speculation, but if we are able to meet those goals, we would be setting our future selves up for financial independence and success.

Even though we are in massive debt, we need to plan for our future. It would be so easy to not contribute to our future and put that money, over $2000 pre-tax, towards debt.  In theory we would get out of debt a lot faster. But we tried that, and our debt didn’t decrease any faster. We just stopped digging our hole deeper. This way forces us to save.

For the last several years, any raises we have earned have gone towards our retirement. We have tried to avoid lifestyle inflation. In some ways I think we are successful, but then I look at our debt and I think we aren’t.

Anyway, we will continue to prioritize retirement savings because we need to plan for our future and we want to be comfortable. Some sacrifices now, like debt, will be worth in 20 years when we want to retire. We will get out of debt, it will just take us a little more time this way.