Monica writes in:
The one financial thing I haven’t done for myself yet is start saving for retirement. The problem is that I don’t ever want to retire and if I imagine a situation where I actually am retired, I just don’t want to envision it at all. I just can’t convince myself to take money away from my needs now for a future that isn’t very bright.
Monica is a forty year old single woman with a career she clearly loves. Other than the retirement thing, she has her financial house very nicely in order, with only a mortgage on a townhouse as an outstanding debt, a nice emergency fund, and a great paying job that she never wants to leave.
So why should she be saving for retirement?
I think that “retirement” is the wrong word for Monica to be using when she thinks about saving in this way.
Let’s look at what a Roth IRA actually is. A Roth IRA is an investment account to which you can contribute money each year (in whatever way you want – weekly, monthly, one lump sum). Once the money is in the account, you can withdraw your contributions whenever you’d like with no penalty – but you can’t put them back.
The big catch is with the gains on that money. If you withdraw them before age 59 1/2, you pay a stiff penalty – you have to pay all taxes on those gains, an additional 10% tax penalty. On the other hand, if you wait until you’re 59 1/2, you can withdraw it completely tax free.
The Roth IRA is often viewed as a retirement vehicle because people who are of that age are often planning to use it for retirement.
But it doesn’t have to be a retirement vehicle at all.
I look at my Roth IRA as my “second life” vehicle. When I turn sixty, my worries about choosing a job or career path that provide me a stable income go away because I now have access to my Roth IRA money. In effect, that Roth IRA money becomes a huge emergency fund – a big enough one to last for years and years of living expenses.
What would you do if you suddenly had an emergency fund that would cover years and years of living expenses? I plan to spend my time doing volunteer work and trying to make a second career out of writing fiction (something I deeply enjoy on a personal level).
That’s not retirement. That, to me, means a lot of options that wouldn’t have existed before.
Instead of thinking of retirement savings as truly retirement savings, instead look at it as an opportunity to save for a big dream you have down the line. For Monica, that means twenty years from now. Whatever that dream is, whether it’s retirement or something entirely different, a retirement savings account will be there for you.