Americans are finally saving again, after years of binge spending on houses and stuff to fill them.
That’s good for America, especially in the long term. But are you saving too much?
Most financial advisers will tell you to max out your 401(k) contributions, especially if your employer provides matching funds. But that might not be the best idea for everyone, especially if you don’t anticipate living lavishly in your dotage.
Over at Punch Debt In The Face, personal finance blogger Debt Ninja explains why he is reducing his 401(k) contributions—basically because he wants to give himself a raise while he’s young to increase his standard of living. This will likely make him poorer when he’s older but that not necessarily an irrational trade off.
What’s more, locking money up in a 401(k) may not be all that wise if you consider the possibility of needing money in the short term.
The third, and probably most important, reason I decided to reduce my retirement contribution by 3% is this: I had no plans for the short term. Sure saving 18% for retirement is great, but guess what? That doesn’t make me rich until I’m 60 years old. What if I want to have a good chunk of change accessible in my 40’s? What if I want to retire early, but don’t want to be penalised for withdrawing from my retirement accounts? Well my friends, this is where the ‘short-term’ investing game comes in to play. I have to start exploring other means to grow my money. I have been so focused on retirement, I completely forgot to establish a game plan for my 30’s, 40’s, and 50’s.
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