Why Maxing Out My 401(k) Put a Kink in My Retirement Plans

To be clear, I'm pro-401(k). However, I'm the first to admit that focusing so much on our 401(k)s has left me scrambling to build other types of accounts. Here's what happened.

A singular focus

About 15 years ago, after a series of financial catastrophes, I realized that I had to get serious about our retirement accounts. To accomplish that, I dedicated myself to building two 401(k)s -- my husband's employer-sponsored plan and my solo 401(k). After rearranging our monthly budget so that our 401(k)s were "paid" first (and everything else paid from whatever was left), I dove in.

As awful as a budget rearrangement sounds, prioritizing retirement plans turned out to be a good thing. First, it was good to have an account that we didn't have to pay taxes on right away. Even though I trimmed the fat from our existing budget, it wasn't as painful as I expected it to be. There's nothing like watching your nest egg grow to inspire you to keep going.

Any time I was nervous about how much was going into the accounts, I revisited the history of the stock market over the past 150 years. If history is any indication, there will be years when the market seems to be circling the drain, and years when our account balances appear headed for the stratosphere. Over time, though, it tends to work out for long-term investors -- and that knowledge spurred me on.

I was focused, but the nearer my husband gets to retirement, the more I realize that my focus was too narrow.

Gaps created by that singular focus

You know what I failed to focus on? All those other sources of funds we'll need in retirement. For example, we need an easily accessible cash account to draw from when the market is in the dumps, and we don't want to sell the assets in our portfolio at a discount. I should also have focused on a separate cash account to cover healthcare costs in retirement that aren't covered by Medicare, and on a larger emergency fund to cover home repairs and maintenance.

In other words, while I was focused on maxing out 401(k)s, I failed to build easy-to-access funds we will undoubtedly need at some point.

Playing catch-up

While I'm happy with where our 401(k)s currently stand, I still find myself trying to catch up by putting money into a high-yield savings account (earmarked for uncovered medical expenses), a money market account with an especially attractive interest rate (for a trip we'd like to take in retirement), and a CD ladder (for inevitable home repairs). And then there's the biggie -- building a cash account we can draw from when the market is down.

Had I thought this through earlier, I might have invested less in our 401(k)s and diverted some of those funds to accounts we will eventually need to draw from. Failure to do so definitely puts the pressure on me now, but it's a problem of my own making and one I'm working my way out of month by month.

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