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Cash Savings vs. Retirement Savings Accounts: Where to Stash Your Money When You’re Unsure What You’re Saving For

Cash Savings vs. Retirement Savings: Retirement Savings Accounts 101Everyone knows saving for retirement is a priority, because retirement is important and compound interest is powerful — but are the tax savings for retirement accounts so great that you should use them to save extra cash, too, such as for a hypothetical future home purchase? When I was in my late 20s — unmarried, not yet a homeowner, not sure how long I wanted to do the lawyer thing — this was my serious concern: cash savings vs. retirement savings. With my future so uncertain, and with so long to go before retirement, I wondered if I was losing more opportunities by saving money where I could get to it quickly, or by putting it away in retirement accounts… If I saved in cash, then my money was always available to me in case I wanted to buy an apartment, get married, or go back to school, but everyone told me to put it in retirement accounts instead to get the tax benefits (plus, retirement is important!).

In the early years, I was lucky because Schwab’s money market fund was paying ridiculous interest by today’s standards (5%!); I also finally did start maxing out my 401K in addition to saving money in cash when I was around 28. But when I finally got my bearings and started researching different retirement savings accounts, I was shocked to find that a lot of them would let me put the money (or some of it, at least) toward school, a first home, or more. A few years ago we did a post on tax-savvy investments that looked at these kinds of questions — but it’s been too long and we need an update. Thank you so much to editor Kate Antoniades for looking into the ultimate question: How do cash savings vs retirement savings stack up? If you’re already saving for retirement but have an extra $5,000 that you think you might need soon — but aren’t sure — should you leave it in a cash account earning very little interest, or put it in a retirement account to get tax benefits? – Kat

We haven’t gone into detail about tax-savvy investments like retirement savings accounts since 2012, so it’s definitely time for an update. What are the different retirement savings accounts available to most people? What are the tax benefits of them? Can you use the money for anything other than retirement, like grad school, a vacation or wedding, or a home purchase?  In the meantime, we’re shared posts on some pretty closely related topics such as setting financial goals for the year, making end-of-year money moves, choosing a financial planner, retirement savings in general, and paying down debt vs. saving. At election time last year, we talked about reacting to a stock market drop.

Before we get into the retirement savings vehicles — where, for the most part, you can’t touch your money until 59½ at the earliest — let’s discuss cash savings. (Oh, and a note on going back to school — if you’re 100% certain you’re going back to school, a 529 may be the way to go. Here’s a post from Fidelity that weighs the options.)

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Tales from the Wallet: Retirement Savings

retirement savingsLadies, how much do you save for retirement? Why do you do it? There was an interesting commenter thread about feeling saving burnout and wanting to splurge a little — do you count retirement savings as something you can cut back on, absent a strong need? We’ve talked about how much to save for retirement, what kind of tax-savvy investments exist to maximize your retirement savings, when to pay down debt vs. save, and where retirement should fit in your total money roadmap.

(Pictured: Hobo ‘Taylor’ Glazed Leather Wallet, on sale at Nordstrom for $70.)

For my $.02, I didn’t get started saving for retirement in a 401K or other tax-savvy vehicle until my late 20s, and I regret that — as they say, there are few powers in this universe stronger than the power of compound interest, and this kind of chart always freaks me out. My husband and I have generally taken the view that saving for retirement is one of our top priorities, and we max out every tax-advantaged vehicle. Like most parents of small kids, I’ll admit that these past few years (yay, childcare expenses) have been tight, and we’ve been moving money from our other, non-tax advantaged savings in order to max out our retirement accounts. (In case that’s unclear — I try really hard for us to spend less than we earn, and I kind of freak out if our take-home earnings for the month are less than we need to pay our bills. But then I remember that our retirement savings and 529 savings are deducted before they get to our take-home earnings, so as long as I can use our other savings to make up for the shortfall, I feel OK about it — within reason.)

How about you, ladies — what are your strategies for retirement savings? Does anyone get a match or perk you’d care to tell us about (anonymously)? Any good tips on how to do it? 

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Tales from the Wallet: Retirement

retirement-womenLadies, how much are you saving for retirement? How large does retirement loom in your thoughts — and where does it fall in your priorities?  Welcome to our next installment of our Money Milestone series, where we’ve discussed paying for grad school, wedding finances, home buyingfinancially planning for a baby, and financial strategies for divorce.

I haven’t retired yet, obviously, but it does loom fairly large in my thoughts and priorities just because getting enough saved by the time we want to retire — and hopefully meet a personal goal of paying for college for both boys — is not going to be a simple matter.  Constant vigilance is the key, I think!  Of course, you don’t want to save so much that you can’t enjoy your life right now — after all, not to get too dark on this sunny day, but not everyone will have to worry about retirement.  We max out my husband’s 401K and my SEP-IRA every year, and we save what else we can in tax-savvy investments and with automatic investing.  (I just started using a new app called Acorns, which is interesting: you can link it to bank and credit card accounts, and it will round up every transaction and invest the difference in Vanguard funds.  Spent $8.95 at the drugstore? It’ll take that $.05 and put it in a queue to invest when you get to $5.  It’s a bit wonky right now — it mysteriously hasn’t updated in 10 days — but I think it shows a lot of promise.)

Readers, are you throwing everything you can at retirement — or are you prioritizing other goals first (like keeping investments fairly liquid for a home purchase or other big expense like a wedding, or paying down debt)?  (Incidentally, we did try to answer what retirement assets you can use for a first home purchase in a previous post.) 

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Guest Post: Planning for Retirement — But Not How You Think

Planning for Retirement | CorporetteRetirement — and retirement hobbies — are likely a long way off in your mind. But I like to be prepared, so I asked Lisa from Privilege what those of us who are still working should know. Can one prepare to pursue hobbies? Were there things she thought she’d love but hasn’t -— or hobbies that, once she got deeper into them, she realized she could have made the time for, earlier? Lisa has guest posted* with us before, pondering the things you might miss about a corporate job once you’re out, and — in one of our top posts — advice from the VP/hiring manager level. Welcome back, Lisa!  -Kat

Many of us dream of retiring and finally having time for Anything But Work. I’ve taken a couple of stabs at retirement myself already, at 57. And, as it turns out, unsurprisingly for you smart folks, there’s more to it than romping around not working.

This is not to say that hobbies, travel, and sofa-intensive afternoons aren’t out there. They are. And they are good. The thing is, they’re even better when you’ve done a little advance research. And, it’s also true that many of us who’ve had jobs with responsibility and authority, despite the associated stress, don’t want to toss it all aside. We’d rather replicate what we love, add new pursuits, and get some autonomy over when we do what. (Pictured: Angela’s Garden Fabric-Back Leather Palm Garden Glove, $18.99 at Amazon.)

It’s worth planning to make that all happen.

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Tales From the Wallet: How Much to Save For Retirement

women-savings-retirementHow much should you be saving for retirement? Are there savings benchmarks by ages? Is saving different for women? These are all questions that come up frequently (and no one really has all the answers) that I thought we should talk about them today. (Pictured:  Marc by Marc Jacobs Wallet, on sale at Bloomingdale’s — was $148, now $103.60.)

A few notes from poking around the Internet:

– According to the Department of Labor, on average women live longer than men, invest more conservatively, work fewer years (or work part-time/freelance jobs without access to a retirement plan).  Joy! MoneyLiving notes that women also have higher health care expenses, in part due to maternity expenses, but also higher premiums. [Read more…]

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