‘We want to go.’ Can We Freeze Our Retirement Income?
“My wife and I are 40 and 41 and make about $272,000 a year combined. Between our various retirement accounts we have about a million in savings,” a user shared in a recent post on the r/PersonalFinance subreddit. “We are thinking of freezing our Roth contributions until we have nothing left. This will allow us to travel more with our children while they are still with us.”
This isn’t a bad problem to have – in fact, it’s good to be so far ahead in saving for retirement that you might wonder if it’s worth spending your prime parenting years with your family.
The post goes on to explain that the couple contributes $16,200 a year to a Roth 401(k), which can be temporarily suspended for free spending on travel. Specifically, the user is asking about the aforementioned offer until their children, now about 10 years old, leave for college. The couple said they would like to retire in their mid-60s.
Does this move make sense?
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Pro tip: There is a risk of saving too much in retirement
We asked Rachel Lawrence, head of advice and planning at Monarch, the popular budgeting app, how to value this couple.
“The crux is really understanding how much you need, so how much you’re spending now and how much you’re likely to spend in retirement,” said Lawrence, who is also a certified financial planner. “They could have $1 million, but we all know $1 million isn’t worth what it was worth.”
A commonly quoted rule of thumb recommends that by age 40, you should have tripled your income saved. In this couple’s case, they saved about four times as much. However, Lawrence says that he would not pay too much attention to these “general” rules, as each person’s circumstances are very different.
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The Reddit post says they would like “75-80% of their pre-retirement income in retirement,” which means that retirement spending is high given their income level. However, statistics shared in the post suggest that the family may be able to afford the vacation. The only question will be how much.
The family needs to decide how important the move is to them, which will require weighing some important values, Lawrence said. Sticking to a travel budget is also important, considering that a typical trip as a family of four can add up quickly, which can put a damper on the savings plan.
While some experts and communities believe in saving as aggressively as possible for retirement to pursue financial independence above all else, that is not the right approach for every saver.
“It doesn’t sound like them, does it?” Lawrence says, explaining that it’s normal to have other priorities. “It sounds like they’d like to delay their financial independence because they really value that feeling of having fun or spending quality time with the kids.”
