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.