Making the Most of Missed Opportunities

Roth IRA Challenge: Making the Most of Missed Opportunities

I can’t express how excited I am to have Ms. Our Next Life on the blog today. She blogs over at Our Next Life and has one of the best, most grounded, reassuring perspectives on the journey to early retirement out there! Seriously, if you’re not already a fan of Our Next Life, it’s time to figure out what all the buzz is about! Go! On top of that, though we’ve never actually met in person (yet!), she’s one of my real friends and I’m delighted to feature her and a bit of her journey here today…

Before we dive in, I just have to share with you guys that Maggie is one of our very favorite humans in PF blogland. She will never tell you herself how awesome she is, but it’s true. I’m especially grateful for her friendship and support since our blogs were both baby blogs – and, of course, all the Clueless GIFs. So needless to say, I’m thrilled to be here.

I’ll start with a confession that’s appropriate to the Roth IRA Challenge: Mr. ONL and I have never invested a penny in a Roth anything, and I’ve saved a grand total of about $250 in any IRA in my life (though it has grown to almost $500 – wohoo!).

The “why” is the very definition of a first-world problem: We’ve been over the income threshold for IRAs since before we got our financial act together, and haven’t been eligible to invest through them. I know, poor us. Please play us a dirge on the world’s smallest violin.

We’ve done some other things right along the way, maxing out our 401(k)s for a bunch of years for example, but ever since we got serious about retiring early, we’ve been kicking ourselves for missing out on IRAs when we had the chance. Like seriously, we couldn’t have saved ~$5000 a year back in the day when we did travel plenty and eat at trendy restaurants practically every week? We for sure could have done it if we’d thought to. Skipping two meals out a month probably would have gotten us there, and that’s without touching the other mindless spending that we hadn’t yet addressed. #lattefactor

But those opportunities to invest in IRAs are gone, lost to us forever. Dwelling on that now doesn’t get us those years back. So how do we make the best of those missed opportunities?

 

Perspective Is Everything

I’m discussing a problem we’re suuuuuper fortunate to have. By earning above the IRA income limits, we’re able to save so much more than we could if we earned less. We clearly come out ahead, even if we didn’t make the most of the chance to put tax-advantaged money away when we were younger.

But let’s say we were talking about a true missed opportunity. Like how we wish we’d bought a second rental property before the housing market heated up again, or how we could have saved more aggressively overall at an earlier age if we’d known the FIRE math and be retired already.

It’s easy to put the lack of IRA savings into perspective by remembering that we’re saving a lot faster at this income level, but what about real missed opportunities? For us at least, perspective is still key to moving forward.

In personal finance blogs, we like to lament the debt we got ourselves into, the years we lost to mindless spending, the poor decisions we made when we were young and dumb. But what about celebrating what we gained through those spending decisions, or by not jumping on opportunities? When we get down on ourselves for missing out, here’s what we try to keep in mind:

Buying a second rental property might have stressed us out. Our tenant in our lone rental is a close relative who’s pretty much the best tenant we could ever hope to have, and makes it really easy to be landlords. If we had bought another property, we’d have to rent to a stranger, and with work as demanding as it is, we don’t have time to be good landlords. That might mean needing a property manager, which could mean not getting positive cash flow on the property, or at best squeezing out a small margin. Instead, by missing the opportunity, we’ve slept better at night than we might have if we had that added money stress, even if the stress was for a good long-term reason.

We made so many great memories with the money we didn’t save for early retirement. We’re huge believers in enjoying the journey to early retirement, and not sacrificing everything fun in life to get there faster. And before we got really focused about saving, we pretty much lived that motto. But thankfully we didn’t buy a ton of stuff – instead we took lots of ski trips, traveled to some wonderful and memorable places across North America and Europe, and ate some truly life-changing meals. Though we’d love to be retired by now, we wouldn’t trade those experiences to be at our goal already.

Working a little longer has had other benefits. “Longer” is relative, of course, since we’re still on track to retire in 2017 at 40-41 and 37-38 (depending on which month we quit!), which we know is not that special among FIRE bloggers, but is super crazy rare and awesome out there in real life. We don’t know anyone from our offline life who’s done anything close to what we’re doing, and we know how lucky we are for this to be an option for us. But by working these past few years, and into next year, we’ve piled up more travel miles on work trips that will take us around the world when we retire, something we’re grateful for, and we’ve gotten to visit some cool places on our clients’ dime too. Pretty sweet.

 

Moving Forward Financially

Of course, sometimes there is truly no upside at all, like if you got conned into investing in a pyramid scheme and lost your life’s savings. I won’t try to tell you to look on the bright side if that happened. That’s when all we can do is focus on moving forward with as much positivity as possible. And that can be done a few different ways:

Resolve not to repeat the same mistakes. Tough as it can be to see a mistake or missed opportunity this way, we try hard to see it as a valuable lesson we couldn’t have learned any other way. And the way we make that lesson count is by making sure we really learned it. That might mean developing our radar to sniff out bad information, or tracking our spending to make sure we learn our trigger points.

Prepare yourself for the next opportunity. This one is a biggie for us. We missed the chance to invest in IRAs in our main career, but we expect to get this chance again when we retire next year and our income goes way down. So we’re building IRA and Roth investments into our retirement spending plan – it’s not quite the same as having saved in them in our 20s, but it’s the next best thing. And as for missing out on a second rental property, we want to put ourselves in a position to pounce whenever the housing market goes down next – we haven’t decided yet what that looks like, but we’re working on it!

Overdo it. For us at least, the best peace of mind comes from knowing we’re not worse off for making a particular choice. And while it may not always be possible to get to that point after missing an opportunity or making a financial mistake, the next best thing is overdoing what we do now to make up for those past whoops moments. So even though we could have stopped contributing to our 401(k)s more than a year ago because we’d already hit the level at which they’ll sustain us forever once we reach age 59 ½, we’ve continued to max them out to make up for not investing in IRAs when we were single and earning less. The 401(k) limit is much higher than the IRA limit, especially with employer match included, so we’re pretty close to feeling like we’ve made up for our past missed opportunity.

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28 Comments

  1. I wish we could have bought another rental during the housing crash as well. But Mr. Mt is quick to remind me that we used every drop of time and money on the homes we did buy. So sometimes even when I maximize an opportunity, I still wish it could have been more.

    Starting to invest in an IRA is a great option after your retire. You could even do a Roth IRA. =) All you need is a little bit of earned income. It will make a little freelance gig all the more fun (for money geeks at least.) I am always overly excited when teenagers start working because they can invest in a Roth. Shockingly, they don’t share this excitement.

    • Oh, you and us both! Kicking ourselves for not grabbing that second rental for sure, even if it would have been tough to manage with our current workloads. But we’ll just be sure not to miss the next opportunity. And haha — I am NOT shocked that teens don’t share your excitement about investing in their many-years-away retirement. 😉

      • MaggieBanks

        As someone that could never fathom having to deal with renters… I do not get this line of regret! 🙂

  2. I love when people say they aren’t eligible for a Roth – the idea excites me! I hope one day to be in those shoes but, until then, Ill keep plugging away at my Traditional 401k and maxing a Roth IRA. Hopefully, by doing both, I can be to super cool nearly retired status like you guys soon!! 🙂 And yes, I am sure you have more than made up for it by still contributing past FI to the traditional 401k…and super bonus if you start a Roth after. I can’t wait to see where next year will take you. 🙂

    • Thanks, friend! I also can’t wait to see where 2017 takes us. Hahaha. 😉 And if you haven’t read it, I recommend How to Retire Early by Robert & Robin Charlton. They retired in ten years after never cracking six figures combined, and they show all of their numbers for every year… I think it’s the best roadmap for anyone wondering if they could possibly retire early because they don’t rake in buckets of cash.

  3. Thanks for having me, M! You’re the best. 🙂 And it was an especially fun writing prompt, given that we don’t get to do Roths right now… but that was good for spurring other thinking. Definitely encourage others to take the Roth IRA Challenge! xoxo

  4. Good perspective! I put money in a Roth only once, and in light of the low taxable income I’m projecting for the future, I now wish I had done Traditional. There are many minor things I’d love to change about my own financial path (like not having used retirement accounts at all for years, for example), but there’s a flip side to everything. Well, except maybe the pyramid scheme type things you mentioned. If I had maxed out my retirement accounts early, I might not have been able to buy the condo I own now, which I’m pretty sure I won in a competitive bid only because I could pay cash. Like you said, any of these doubts are just extreme first world problems anyway!

    • I wonder if I’ve put too much money into Roths too – it’s so hard to predict future tax brackets that I decided to err on the side of more in Roth. Only time will tell. On the balance side though, my husband has very little in Roths compared to me and a larger taxable account, so it’ll probably work out okay in the long run.

      • MaggieBanks

        I get all bogged down with these choices and I just have to learn that it’s all fine. Maybe we won’t optimize the absolute best, but we’re also eons above the knowledge of so many so we are so lucky to be worried about this kind of thing!

      • I’m sure it will work out, and there’s no downside to Roths. You can ignore future tax brackets and enjoy those tax-free returns!

    • Ellie @ The Chedda

      I’m of the opinion that a Roth IRA covers your butt in case of an emergency where you have to withdraw the money or in case of a drastic tax hike, so I like to look at Roth IRA investments as a different kind of smart even if they aren’t the most optimal. 🙂

      • MaggieBanks

        With kids, I like to think of it as an emergency college fund. I’m hoping to help them out with some (but not all) college, but also don’t want it to be specifically tied in education (like a 529) because I feel like just as employment is changing dramatically, so will education… so our Roth IRAs will provide that money to help if we don’t have enough in a brokerage account.

      • Totally agree! A Roth is always a good call because it comes with tax benefits no matter what. 🙂

    • You never invested in retirement accounts?!?!?!?! How can you sleep at night?!?!?! Hahaha. Just kidding. Like you said, that might have been the perfect move because it let you buy your condo. And it means you don’t have to do the complicated dance we’re now in of figuring out how to save more in taxable accounts even though our 401(k)s have more than enough.

  5. Ellie @ The Chedda

    I think this way with income too! My roommate from college makes about twice as much as I do and sometimes I feel a sharp pinch of jealousy. Then I remember that not having her job means that I have a ton less stress and a job that I actually enjoy! I’m not missing out on possible income, I’m choosing to trade that money for more contentment in my life 🙂

    • MaggieBanks

      Yes! This is what we have to remind ourselves every day. I’ve chosen to give up a decent income to be a stay at home mom and my husband has chosen to give up more money for more vacation days and great benefits. There’s always a trade-off!

  6. ChooseBetterLife

    Have you looked into a backdoor Roth? If you’re already paying taxes on the $$ because you’re above the tIRA deduction limit, why not slip it through the backdoor into a Roth IRA and get the best of both?
    Also, just as you can’t time the stock market, you can’t time the housing market either (I sold one house with a big gain and the next one with a bigger loss.), so don’t beat yourself up for not scooping up more property with the crash. It’s sooo hard to know where the bottom really is.

    • MaggieBanks

      I feel like every single decision we make financially is an attempt to time the market! We’re always guessing and it doesn’t always work out for us (sorry about the loss sale!).

    • We’re hoping not to need the backdoor Roth option (and there’s often the rumor that that loophole will get closed soon), but we know about it, and there are a few circumstances in retirement where we’d use it. But we’d ideally like to leave all of our 401(k) money alone to give us peace of mind when we’re older!

  7. As always, enjoyed your writing. We have had to make our peace too with not starting to save much, much earlier in our lives, and I understand and agree with your perspective on not regretting all the fun and travel we indulged in during those years. Here is another positive spin I like to put on our late start down the road to FIRE – I don’t have to slog through a decade or more of saving to reach a distant goal. I’m not sure that I have either the strength of character or the gumption to march so steadily for so long, so maybe it isn’t such a bad thing that I came to this later in life (and yes, I am aware of my privilege here. Our incomes are high enough that even though we started late, we can still get there with relative speed).

    As an aside – it isn’t too late – you could still max our your Roth IRA by doing a backdoor Roth conversion or even (if your employer allows us) a mega backdoor Roth.

    • MaggieBanks

      We’re later to the game too, but not THAT much later… still not making a whole lot and only had some saved… there are always the woulda coulda shouldas! 🙂

    • So true! Starting later, during peak earning years, does mean it’s much faster to save for FIRE! We’ve been documenting that in our quarterly updates for a while, and showing how fast it can happen if you significantly out-earn your expenses. And sadly no mega backdoor option is available to us, though we may still do a backdoor Roth this year! (Though we’re leaving our 401(k) money alone until we’re 60 for peace of mind! We’d do this year’s backdoor Roth with earned income.)

  8. Great post! We can’t spend time kicking ourselves for past mistakes-they’re already done and over with. We can’t go back in time and change the past, as much as we might like to. Besides, you wouldn’t want to go back and make a decision that might have made things worse (grandfather paradox, anyone?). All we can do is accept where we are, and the decisions we’ve made, and start moving forward to our goals.

    • MaggieBanks

      Acceptance is VERY important to moving forward!

    • We just rewatched Back to the Future 2, and think that’s a good example of the paradox. How do we even know that we’d be better off if we hadn’t made those “mistakes”? Maybe our alternate future would be worse, and would have Biff as president?! (Oh wait…) 😉

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