Smart Couples Finish Rich Chapter 5: Retirement

Sundays are State of the Union days in our house, when sweetie and I sit down to talk about how we're doing relationship-wise. Sometimes they're quick check-ins, sometimes we get into a little more depth, depending on what we've got going on. In this year leading up to our wedding, we've decided to make finances a central part of our State of the Union talks. Over the next couple of months, sweetie and I will be reading Smart Couples Finish Rich by David Bach and discussing the latest chapter at SOTU.

We are running late on SOTU this week. I have been crazy busy at work, Shiner has had training for his new job, and tonight we were Super Tuesdaying and watching the returns. But tonight before we headed off to vote we had a really excellent conversation about the retirement chapter.

Our retirement savings are vastly disparate. I have had a Roth IRA since they were invented, when my dad opened one for me, urged me to contribute, and matched most of my contributions until I was making enough that I could max it out on my own. I opened a 401(k) as soon as I was eligible at my current job, and have been maxing those contributions out ever since. I was an early adopter of the Roth 401(k). This year I opened a traditional IRA with after-tax money in anticipation of converting it to a Roth IRA in 2010. I'm the girl my coworkers come to when they have questions about retirement accounts, the poster girl for retirement planning. As you may imagine, this makes me a lot of fun at parties.

Shiner is a different story. He's nearly 30, with very little saved. He had a small amount a few years ago in a 401(k) but he cashed it out before we met so he could go back to school and finish his degree. He doesn't have a Roth IRA or a traditional IRA. His current employer, a nonprofit, has a mandatory contribution of 4% or 5% to a 403(b) (they're in the process of ratcheting up the minimum amount over the next month or so). There is a 100% match at that minimum level, but no more. Shiner contributes at that minimum level.

His new part-time job does offer a 401(k) he'll become eligible for in a couple of paychecks, with some level of match. He plans to contribute 3% of that paycheck to the 401(k).

So while he's putting some portion of his income toward retirement savings, most of it is focused on debt repayment. He's going to be focusing on debt repayment at least until we get married. We'll probably be paying some of it off after we get married. What can I say? Debt is a dead weight. He's making great progress, but it's just really hard.

But there's good news. Once his credit card debt is paid off, and hopefully that will happen within our first six months of married life, we should be well able to hit Bach's goal of saving 20% of our combined income for retirement. We ran some numbers, and we should be able to start maxing out my 401(k) and his 403(b) once that debt is gone. If we do enough of it on a pre-tax basis, we may get our AGI low enough to each contribute to our Roth IRAs. At the very least, he will be able to contribute to a Roth IRA, and he's the one who needs the most catching up. We might not be able to max out our 401(k)'s in 2009, depending on how much credit card debt has lingered around, but we'll be able to do it in 2010. Man, that feels good to say.

One other thing we talked about is that so far as it is possible, we both want to contribute the same amounts to our retirement accounts. This will mean that to max out his 403(b) contribution, he'll have to withhold upwards of 30% of his salary versus my less than 15%. We've already established that we want a yours-mine-ours account system but I think this means we're going to have to favor the "ours" portion over the "yours" and "mine."

Of all the chapters so far, this is has been the biggest help to me. It's not that the information was so new or so fantastically presented, but now that we've established that we both value long-term stability and flexibility, we know we've got to prioritize retirement savings. This chapter gave us an opportunity to talk about how to do that in a much more structured way than I imagine we would have done on our own. There will be some more tweaking as we go along. Should he contribute 3% or 6% to the 401(k) at his part-time job? After we get married should we rush the debt repayment, or draw it out (it'll all be on low- or no-interest cards) so we can start maxing out our retirement accounts as soon as possible? But that's just nit picking, and we're not there yet. Right now, Shiner's plan is debt repayment, and my plan is supporting him in that. But it's a big relief to me that we are able to see a long-term plan shaping up.