Shortly after falling down the FIRE rabbit hole last spring, I started looking into ways I could save more aggressively for retirement. As I mentioned in my first post, I thought I was doing ok by participating in my employer’s mandatory retirement program and maxing out my Roth IRA through Vanguard, but I didn’t realize I could be doing so much more. A trip to the Mr. Money Mustache investing forums lead me to the realization that I could voluntarily contribute additional pre-tax money to a retirement account, which would lower my tax burden and accelerate my retirement savings significantly. Because I work for a public university, my pre-tax retirement investment vehicle is a 403(b).
Figuring out how to start contributing additional money to a retirement account wasn’t entirely obvious, and took a little digging on my university’s HR website. Once I found the form, I filled it out and printed it off. The maximum I could voluntarily contribute was $18,000 a year, or $1,500 a month. I cringed at the idea of that number, as it is a rather large chunk of my gross pay. But I decided to give it a try – $500 a month at first, a test to see how it felt in my budget to have a smaller pay check the next month.
For better or for worse, each time I want to change my voluntary retirement contribution, I have to fill out and print the form and then walk it across campus to the administration building. This process doesn’t make it easy to change your contribution since you can’t click a button and change it instantaneously over the internet. I also worry that there are people out there (like me a year ago) who don’t know this is an option and don’t know how to get started. However, lacking the ability to make instantaneous changes could also be viewed as a good thing, since it prevents you from changing your contribution every time you decide you need more spending money! I have done this walk four times now, and each time I feel like I’m getting away with something. I carefully fold the paper in half, shielding its contents from any colleagues I might run into on my cross-campus trek. What if they found out I was contributing extra to my retirement account? Would they think I was getting paid too much? Would they say something snide about how their budget doesn’t allow for that? Or maybe we’re both a part of the secret super-savers club? This is a dumb thing to be anxious about, but there it is. At the same, I feel incredibly proud, grateful, and empowered that I am able to do this for my future self. I open the door to the payroll office and mutter something to the administrative assistant about wanting to change my retirement contribution. She glances over my paperwork before entering the change in her computer and I head out the door – one more tiny personal finance triumph.
Back to my $500 experiment. To my pleasant surprise, the pre-tax deduction meant that my pay check only went down by about $350 for that first month after I started the voluntary retirement contributions. That meant $150 wasn’t going to taxes, and that money would grow tax-free for the next 30 or so years. Sweet! After a few months of my $500 experiment, I upped it to $800, then $1100, and this past week I finally made the leap to the full $1500 to be deducted from my July paycheck. Tripling my voluntary contribution over the last year or so was no small task and it was made possible by a number of factors:
- Gradually making myself comfortable with less take-home pay and adjusting my budget accordingly
- Two small annual pay increases that enabled me to increase my pre-tax contribution without seeing an additional reduction in my take-home pay
- Paying off my car loan, freeing up several hundred dollars per month that is no longer required for car payments
- No big financial surprises in the last year that couldn’t be covered with cash savings
I may not stay at the full $1500 contribution forever. Mr. Green and I may change our savings goals – specifically, we may move to a larger house in the next few years and my share of the mortgage will be larger. I may encounter other financial bumps in the road. However, for now it’s something I’m going to try to protect. This may mean making sacrifices in other parts of my budget, but prioritizing retirement savings is something that is really important to me right now. After 11 years of school + post doc, I didn’t really start saving for retirement in a significant capacity until I was almost 30. I have a lot of catching up to do, and we all know it’s better to do that sooner rather than later.
Have you tried increasing your pre-tax retirement contribution?