Why I drained my retirement fund at age 37
Working people simply don’t make enough money to take care of ourselves now AND in the future
I started a new, full-time job this week. As part of my onboarding, I had to decide whether or not to contribute to the company’s 401(k) retirement plan.
The lingering ~personal finance expert~ in me said I’d be stupid not to. Free money from the company match!
The household accountant in me asked: Just how free, though? I’d have to set aside 8% of my pay to get that “free” 4% from the company — in savings I can’t touch without a penalty for 30 years, invested in a stock market that’s imploded retirement plans at least thrice in my lifetime.
And the anti–budget culture warrior in me said f*ck that market, there’s no ethical way to invest, you cannot make money off the backs of exploited workers and consumers.
I’m not sure exactly who won this round. I decided not to contribute for now. My salary at the company is the same as the salary I pay myself now, so my take-home pay would go down by any percentage I contribute to retirement. That’s not a good fit right now.
But will I contribute in the future in order to build savings on my employer’s dime? Maybe? The sketchy ethics and the market volatility will still be there. I have a hard time naming an ethical standard and then not living up to it. But… we live in a tough world. I devoted an entire chapter of You Don’t Need a Budget to what an absolutely impossible position we’re put in — profit off a violent and unethical system or live in poverty when our bodies can no longer work.
Why I stopped saving for retirement
I mentioned a little in my book and in some posts here that I don’t have any retirement savings — and that this wasn’t always the case. A reader asked for more on that decision: “I've seen you (admirably!) write about the ethics of investing before, but I'd love to read more about your decision and approach to all of this. (I say this as someone also without retirement accounts but lots of shame-ish and fear-based feelings about not having them.)”
I realized this is such a simple and obvious topic for me to talk about, but I’ve probably been avoiding it because I don’t want to be yelled at.
Our current system of retirement planning is woefully inadequate for almost everyone, but we still put all the pressure on individuals to figure it out. Deciding to opt out — for any reason, but especially because you need or want the money to spend now — brings on all the fear and shame budget culture can lob at you.
But Healthy Rich is about having these conversations without (or in spite of! or to reduce!) the fear and shame.
So here’s my completely unadvised experience with and approach to saving for retirement.
I built up about $26,000 in retirement savings over four years through my first full-time job. The company offered a 100% match on 4% contributions, so I took it. The salary I made already blew my mind after I’d struggled as a freelancer for years, so I didn’t miss that 4% one bit. When I left at the end of 2019 to start freelancing again (with much more stability this time), I rolled it into an IRA and let it hang out for a couple of years. I threw in a few hundred dollars here and there while I was freelancing, but I eventually dropped it as a priority.
My partner and I started talking about buying a house sometime in 2022. In the cheap rural area we targeted, we needed about $20,000 for a down payment. We had that in personal savings — but only that. We’d have to drain our comfort fund and tie all of our cash up in the house. But I had that money sitting in my IRA…
By this time, I was beginning to sour on the ethics of investing, so it was becoming uncomfortable to have money invested. Plus, I did the math with one of those online calculators, and with the best-case market scenario, that $26,000 was only going to be about $100,000 by my retirement age. That would get me nowhere. And I didn’t do this math at the time, but another kicker: That seems like I’m giving up a lot of “free money” again, in investment gains. But that’s only about $3,000 in gains per year. Moving from my city rental at the time and paying my cheap mortgage stood to save me $9,600 in housing costs per year. So, it turns out, keeping the investments wasn’t even the most fiscally optimal choice.
But, like I said, I didn’t do that math then. I wasn’t trying to make the most fiscally optimal choice. I was trying to make the choice that best supported the life I wanted. That included a home I owned, near my family, with plenty of money in my comfort fund to take care of it (and me, if I needed it).
So I emptied the IRA and bought a little house in a small town for $125,000. (At tax time, I got the bill for the income tax and 10% fee on that early withdrawal, and I set up a payment plan with the IRS.)
I didn’t start over with my retirement savings for a lot of reasons. I don’t want my money in the stock market. I wanted the money to spend now, not in the future. The amount I could save doesn’t seem worth the tradeoff of not having the money now. I expect to be able to write, consult or teach long past age 67 (but I understand that’s not guaranteed!). I expect Social Security to survive in some capacity; maybe we’ll even improve our social safety net by the time I reach retirement age (I’m always optimistic!). Or maybe I’ll move somewhere cheap with socialized health care (I’m also a little adventurous).
I don’t know for sure what I’ll do for money in my 60s, 70s, 80s, 90s. But neither do the vast majority of Americans, even those who are contributing to their company’s 401(k) or opening Roth IRAs or painstakingly managing a SEP-IRA in self-employment or contributing to Social Security and Medicare with every paycheck. Pay is stagnating, costs are rising and retirement plans that eat into the wages of working people are never going to be good enough. We simply don’t make enough money to take care of ourselves now and in the future.
I don’t know for sure what I’ll do for money in my 60s, 70s, 80s, 90s. But neither do the vast majority of Americans.
My best retirement plan is to keep supporting lawmakers who believe government should work for those who need it the most at the cost of those who have the most. To hold them accountable for repairing and expanding our social safety nets. That might sound like a fantasy to a lot of people — but how realistic does saving 15% of your income sound to you?
On the ethics of investing
For more of my complicated and not at all stagnant thoughts on investing in general, here’s a bit from YDNAB:
Investing is a tricky topic when you’re concerned with being a good and ethical steward of money in our society…My basic stance is: there’s no purely ethical way to build wealth. Thankfully, we’re not aiming for “purity” here; we won’t re-create budget culture’s shame by attempting to find a different way to strive for perfection. In this system (and, likely, under any human circumstances), no one can or should strive to live a perfectly ethical life…
The personal finance industry attempts to wash over ethical concerns about investing and convince us we can achieve long-term financial stability without compromising our values, but it’s not true. These ethical problems are baked into the system we rely on to survive, and it’s difficult not to participate. You deserve the comfort, safety, and dignity of planning for your future, supporting loved ones in need, and knowing your basic needs will be met when you stop working.
In the simplest terms: investments gain value because the underlying companies make profits by selling goods or services for more than it costs to produce them…This system makes investing necessarily exploitative. Any profit a company makes means workers produced more value than they were paid for, or resources were extracted for a low cost, or a company sold goods or services for prices that exceeded their value. The mostly unfettered incentive to increase stock value leads to things like unlivable wages, environmental destruction, and high inflation, among other societal harms…
None of this is to say you’re a bad person if you contribute to a retirement account. You’re challenged with surviving in a system that gives you few other options. But it does make this a tough decision to wrestle with ethically. If you have the fortitude to question our system and look for alternatives, consider what your financial plan could look like without stock market investing.
I just turned 60 last week, and I'm not sure how old you are, but it's one thing to 'say' you can work past 67 and another thing to 'do' it.
I'm in retail sales, which is not overly physically demanding, but it is hard on your feet and back, and the random shifts mean you can be working until 9 or 10 at night and back the next day at 10 am. While I do work with women in their 70s and 80s, I'm not sure that I will want to continue at full time for another 7 years.
My husband works from home and travels a few times a year for work. His job is physically easier but more time intensive because he can always continue working long past an external cue to quit. But he will probably continue until 67.
I am thankful I contributed to 401Ks at all my retail jobs and was fully vested in two of them. I am fortunate that I was able to let them alone. If I had had to make a real choice of a house down payment, I might have done what you did, but my fear is that many people close them for non essential reasons and would regret it if they had known (although someone once told me you can take out a loan against your 401K and not pay a penalty?)
I've felt some shame in this area. I wonder how much of the shame is because of budget culture and the pressure to be totally responsible for something that, in reality, is difficult, if not impossible, for many people? Collectively, we lack so much imagination around this. I hope too for better policies so that everyone is supported throughout life and as we age.