Author Topic: creating cash reserves vs. upping 401K?  (Read 2043 times)

albireo13

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creating cash reserves vs. upping 401K?
« on: September 18, 2017, 06:29:16 AM »
I am 61yo and a few years away from retiring.  I currently have my 401K contributions enough to receive full employer matching but, no more.
As we are paying off consumer debt, I can easily increase that.
However, our cash reserves (checking, savings, etc) are low ....  only a few thousand.  It's amazing how easy it is to go through that with unexpected expenses .... car repairs, house repairs, health costs, etc.    I dropped $6K last year on an unexpected dental implant ... Ugh!

I go back and forth between wanting to up the 401K or dumping $$ into cash reserves. 

Hmmm ... watch   'yall think?

Fishindude

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Re: creating cash reserves vs. upping 401K?
« Reply #1 on: September 18, 2017, 06:36:11 AM »
You should always have some cash on hand for things that come up, such as you just explained, but at 61 years old and approaching retirement my concern would be focused on eliminating debt so that you aren't burdened with any of that in retirement.

slappy

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Re: creating cash reserves vs. upping 401K?
« Reply #2 on: September 18, 2017, 07:27:43 AM »
Do you have a sinking fund for some of those things? Car repairs and house repairs should not generally be considered emergencies, in that you know something is going to need to be repaired eventually. Maybe a case study would make sense. I'd like to know the interest rates of the debt first.

Michael in ABQ

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Re: creating cash reserves vs. upping 401K?
« Reply #3 on: September 18, 2017, 07:37:05 AM »
I would keep at least three months of expenses in cash (or checking or savings) and up to six months. $10K should cushion just about any emergency that might come up from a large medical bill to the loss of a vehicle or some major household item. I you can't swing $10k then I would shoot for at least $5k.

You're getting the full match so you're not leaving money on the table. Paying off that debt is a guaranteed return, even if it's only 5-6% interest. If it's 10-20% credit card interest then it's a great return versus what you would get in your 401k.

Laura33

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Re: creating cash reserves vs. upping 401K?
« Reply #4 on: September 18, 2017, 08:23:57 AM »
Can you post the amounts and rates of the debt?

ITA with slappy -- the kinds of expenses you noted are not "unexpected," because you know they are likely to happen at some time, just not when or how bad.  Before you retire, you need to build a reserve into your monthly budget that appropriately accounts for those sorts of periodic things; you don't want to get into retirement and having to call on the CCs or some other financing scheme because you can't afford to pay the bill in full.

The question is when to start that fund -- and that's what depends on your debts.  If you're paying off a 4% mortgage, then put that on hold, build up your sinking fund, and max out your 401(k).  OTOH, if you're paying 25% CC rates, keep the bare minimum in cash, invest in your 401(k) only to the match, and throw everything else at that ridiculous debt.

frugaliknowit

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Re: creating cash reserves vs. upping 401K?
« Reply #5 on: September 18, 2017, 11:35:23 AM »
Since you are retiring soon, you need to build ~ 2 years worth of short term liquid investments anyway (to live off of when you first retire), so you may as well start that process and GET RID of debt.
« Last Edit: September 18, 2017, 11:36:54 AM by frugaliknowit »

seattlecyclone

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Re: creating cash reserves vs. upping 401K?
« Reply #6 on: September 18, 2017, 12:27:52 PM »
Do you have any money in IRAs right now? At your age you can withdraw from these accounts without penalty. In your shoes I would first make sure that I have enough money saved up between an IRA and a checking account to cover any unplanned expenses. After that, throw any excess cash in the 401(k).

farmerj

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Re: creating cash reserves vs. upping 401K?
« Reply #7 on: September 18, 2017, 02:12:45 PM »
At 61, a 401K can be withdrawn from without penalty. Might be worth it depending on the debt and, I suppose, your chance of falling off the wagon.

Maybe a case study would make sense.

Just want to ditto slappy. A case study  is something you really should do, if only to figure out where you are, pre-retirement. There's a pre-made spreadsheet that gets you started:

https://forum.mrmoneymustache.com/case-studies/how-to-write-a-'case-study'-topic/