Combating Lifestyle inflation

[Davin]

I just got a 3% raise. I immediately adjusted my 401k contribution upwards 3% to compensate. This is the second year in a row I have done this (last year I also got a 3% raise). This is on top of the automatic 1% annual increase I have set up (is that lifestyle deflation?). In a few more years I will be maxing out my 401k contributions, and will need to start an IRA or something similar to keep hedonic adaptation at bay. I may be starting late, but I am picking up momentum.

[Gin1984]

Good job!!!  Having you considered funding a Roth as well?

[lexie2000]

Awesome to hear and congrats!!

After we maxed out our 401ks (in the early 80s) and had a healthy EF, we started throwing anything extra at the mortgage (high interest rates back in those days!!).

[szmaine]

Good on you!! I probably should do this too....Hmmmm.

[Davin]

Good job!!!  Having you considered funding a Roth as well?

Thank you. I am on the fence about funding a Roth because I am currently trying to FIRE in the next 12 to 17 years, and I am under the impression that Roths tend to be better suited for longer term horizons. Am I missing something here?

[Gin1984]

Good job!!!  Having you considered funding a Roth as well?

Thank you. I am on the fence about funding a Roth because I am currently trying to FIRE in the next 12 to 17 years, and I am under the impression that Roths tend to be better suited for longer term horizons. Am I missing something here?

If you have a Roth open for 5 tax years, any amount you put in can be removed without penalty or tax.  Yes, for the gains you can't put it out before 59.5 without the penalty (like the other retirement accounts).  If you fund it for 12 years that is $66,000 you can pull out.

[Davin]

Awesome to hear and congrats!!

After we maxed out our 401ks (in the early 80s) and had a healthy EF, we started throwing anything extra at the mortgage (high interest rates back in those days!!).

Thanks.  I have a fair EF stashed away, enough to last me about 3 to 6 months. Even though interest rates are much lower now than in the 80s, I am throwing a lot of money at [bracing for face-punch] a variable rate HELOC while the rates are still low. My payoff horizon is down to a year and a half at the current rate, then I will be debt free. It is the last vestige of my messed up marriage/divorce, and even though it is  probably not the most astute financial move, it means a lot to me symbolically.

[Davin]

Good job!!!  Having you considered funding a Roth as well?

Thank you. I am on the fence about funding a Roth because I am currently trying to FIRE in the next 12 to 17 years, and I am under the impression that Roths tend to be better suited for longer term horizons. Am I missing something here?

If you have a Roth open for 5 tax years, any amount you put in can be removed without penalty or tax.  Yes, for the gains you can't put it out before 59.5 without the penalty (like the other retirement accounts).  If you fund it for 12 years that is $66,000 you can pull out.

That sounds like a great bridge for the first few years of retirement, thanks for the clarification. I am still new at this.

[Gin1984]

Good job!!!  Having you considered funding a Roth as well?

Thank you. I am on the fence about funding a Roth because I am currently trying to FIRE in the next 12 to 17 years, and I am under the impression that Roths tend to be better suited for longer term horizons. Am I missing something here?

If you have a Roth open for 5 tax years, any amount you put in can be removed without penalty or tax.  Yes, for the gains you can't put it out before 59.5 without the penalty (like the other retirement accounts).  If you fund it for 12 years that is $66,000 you can pull out.

That sounds like a great bridge for the first few years of retirement, thanks for the clarification. I am still new at this.

:)  Glad to be of help!  I am pretty low income so Roth's were good for me so I learned a lot about them.  I started with a traditional IRA then 401k then Roth, lol.

[Emilyngh]

If you have a Roth open for 5 tax years, any amount you put in can be removed without penalty or tax.  Yes, for the gains you can't put it out before 59.5 without the penalty (like the other retirement accounts).  If you fund it for 12 years that is $66,000 you can pull out.

It actually does not even have to be open 5 years.   At any time you can take your contributions out without taxes or penalties.   http://money.cnn.com/retirement/guide/IRA_Roth.moneymag/index5.htm

For this reason, the Roth is a good place to store money that you might need/want before retiring, IMO.   We keep about $30k in a Roth, and the rest in tax-deferred.

[Gin1984]

I just got a 3% raise. I immediately adjusted my 401k contribution upwards 3% to compensate. This is the second year in a row I have done this (last year I also got a 3% raise). This is on top of the automatic 1% annual increase I have set up (is that lifestyle deflation?). In a few more years I will be maxing out my 401k contributions, and will need to start an IRA or something similar to keep hedonic adaptation at bay. I may be starting late, but I am picking up momentum.

Been doing this for years too. Nicely done :-)

Shameless Plug: Mutilate The Mortgage With… Gentle Lifestyle Deflation

I like the plug BUT the link does not work....

[greenmimama]

Great idea OP, you will benefit greatly from those decisions

[ThermionicScott]

I just got a 3% raise. I immediately adjusted my 401k contribution upwards 3% to compensate. This is the second year in a row I have done this (last year I also got a 3% raise). This is on top of the automatic 1% annual increase I have set up (is that lifestyle deflation?). In a few more years I will be maxing out my 401k contributions, and will need to start an IRA or something similar to keep hedonic adaptation at bay. I may be starting late, but I am picking up momentum.

Been doing this for years too. Nicely done :-)

Shameless Plug: Mutilate The Mortgage With… Gentle Lifestyle Deflation

I like the plug BUT the link does not work....

Try this one:  http://www.mutilatethemortgage.com/2013/08/09/mutilate-the-mortgage-with-gentle-lifestyle-deflation/

[dude]

I just got a 3% raise. I immediately adjusted my 401k contribution upwards 3% to compensate. This is the second year in a row I have done this (last year I also got a 3% raise). This is on top of the automatic 1% annual increase I have set up (is that lifestyle deflation?). In a few more years I will be maxing out my 401k contributions, and will need to start an IRA or something similar to keep hedonic adaptation at bay. I may be starting late, but I am picking up momentum.

Good on ya! This is the fool-proof way to end up contributing the IRS max ($17,500) without breaking a sweat.  Living without money you didn't have prior to the raise anyway is a great habit to get into.  I did this early in my career and got contributing the IRS max within 6 years, where it's been pegged ever since.  I frequently urge co-workers and subordinates to do the same.

[spoonman]

Right on!  That's awesome. 

I've been doing something similar, except that I throw the money in taxable accounts.