Stepping Out

Now
The mist across the window hides the lines
But nothing hides the color of the lights that shine
Electricity so fine
Look and dry your eyes
--Joe Jackson

This morning I heard a personal finance pundit advise listeners to max out contributions to their retirement accounts once they had 3-6 months living expenses covered. Employer matching funds amount to free money, he argued, plus the tax benefits...

Until last fall I was doing just that, diverting maximum gross pay towards my 401k. However, while my retirement balances marched higher, I lacked funds to deploy in the present. After monthly expenses, little was left for saving, investing, and lifestyle activities. As such, I was experiencing a liquidity problem not unlike many are experiencing now as part of the credit crisis. Although I had 'balance sheet' assets that suggested a decent long term financial position, I lacked resources maintain flexibility and to exploit opportunities in the near term.

So a year ago last August I decided to eliminate all voluntary retirement contributions. I currently pay in the required minimum to get the employer match but no more. The rest of my net pay comes to me. The net effect was like giving myself a significant pay raise. With the increased cash, I was able to pay off all non-mortgage debt, do some investing, and build a good year's worth of living expenses in cash. Now, I'm looking at paying down my mortgage within three years.

Sure, I'm paying taxes on the income. But after those taxes, it's mine. Moreover, given our current financial state, there is some question in my mind whether future retirement account distributions will be safe from government plunder.

While not as liquid as I'd like, shifting funds away from retirement and towards present life has improved capacity for controlling my finances.